We have audited the accompanying consolidated statements of operations and
cash flows of Commodore Media, Inc. and Subsidiaries for the period from January
1, 1996 to October 16, 1996 and for the year ended December 31, 1995. These
consolidated statements of operations and cash flows are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated statements of operations and cash flows based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
statement of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated statement of operations and cash flows
presentation. We believe that our audits of the consolidated statements of
operations and cash flows provide a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations and cash flows
referred to above present fairly, in all material respects the consolidated
statements of operations and cash flows of Commodore Media, Inc. and
Subsidiaries for the period from January 1, 1996 to October 16, 1996 and for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
February 10, 1997
F-169
COMMODORE MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
JANUARY 1, 1996
TO OCTOBER 16, YEAR ENDED
1996 DECEMBER 31, 1995
--------------- -----------------
Total revenue............................................... $ 34,826,060 $33,652,677
Less agency commissions..................................... (2,869,014) (2,857,912)
------------ -----------
Net revenue................................................. 31,957,046 30,794,765
Operating expenses:
Programming, technical and news........................... 5,906,967 5,365,686
Sales and promotion....................................... 9,303,914 8,796,481
General and administrative................................ 6,081,262 4,870,463
Corporate expenses.......................................... 1,756,797 2,051,181
Depreciation and amortization............................... 2,157,750 1,926,250
Other expense............................................... 13,833,728 2,006,550
------------ -----------
Operating (loss) income..................................... (7,083,372) 5,778,154
Interest expense............................................ 8,860,958 7,805,525
Interest income............................................. 221,806 420,659
Other expenses, net......................................... 1,980,908 48,796
------------ -----------
Loss before provision for income taxes and extraordinary
loss...................................................... (17,703,432) (1,655,508)
Provision for income taxes.................................. 133,000 140,634
------------ -----------
Loss before extraordinary loss.............................. (17,836,432) (1,796,142)
Extraordinary loss on extinguishment of debt................ -- (443,521)
------------ -----------
Net loss.................................................... $(17,836,432) $(2,239,663)
============ ===========
See accompanying notes.
F-170
COMMODORE MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM YEAR ENDED
JANUARY 1, 1996 TO DECEMBER 31,
OCTOBER 16, 1996 1995
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $(17,836,432) $ (2,239,663)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Loss on extinguishment of debt............................ -- 443,521
Depreciation and amortization............................. 2,157,750 1,926,250
Noncash interest.......................................... 3,315,669 2,673,829
Long-term incentive compensation.......................... 1,066,893 79,000
Non-cash compensation..................................... 12,731,587 --
Provision for uncollectible accounts and notes
receivable.............................................. 488,320 556,137
Loss on disposition of assets............................. -- 9,819
Net barter income......................................... (222,645) (184,300)
Initial public offering and pending merger expenses....... 1,909,648 --
Changes in assets and liabilities, net of amounts
acquired:
Increase in accounts receivable......................... (2,351,753) (1,847,015)
Increase in prepaid expenses and other current assets... (208,462) (88,787)
Decrease in accounts payable and accrued expenses....... (337,896) (158,855)
Decrease in accrued compensation........................ (496,177) (230,645)
Increase in accrued interest............................ 1,752,172 582,525
Increase (decrease) in accrued income taxes............. 20,952 (277,135)
------------ ------------
Total adjustments.................................. 19,826,058 3,484,344
------------ ------------
Net cash provided by operating activities................... 1,989,626 1,244,681
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of loan by stockholder............................ 250,375 182,988
Purchase of property, plant and equipment................... (448,677) (320,980)
Payments for acquisitions................................... (31,900,000) (3,100,000)
Deferred acquisition costs incurred......................... (1,326,673) (417,020)
Deposits on pending acquisitions............................ (745,000) (525,000)
Loans to employees.......................................... -- (315,863)
Other investing activities, net............................. (187,528) 87,528
------------ ------------
Net cash used in investing activities....................... (34,357,503) (4,408,347)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Senior Notes and warrants......... -- 64,956,422
Proceeds from Existing Credit Facility...................... 18,700,000 --
Net proceeds from issuance of preferred stock............... 9,822,520 --
Proceeds from issuance of common stock...................... -- 100
Payment of initial public offering and merger expenses...... (1,007,297) --
Repayment of amounts borrowed............................... -- (39,014,833)
Payment of financing related costs.......................... (781,170) (4,226,762)
Redemption of preferred stock............................... -- (8,665,835)
Purchase of redeemable warrant.............................. -- (1,000,000)
Repurchase of common stock.................................. -- (25,000)
Principal payments on capital leases........................ (9,812) (11,186)
------------ ------------
Net cash provided by financing activities................... 26,724,241 12,012,906
------------ ------------
Net (decrease) increase in cash and short-term cash
investments............................................... (5,643,636) 8,849,240
Cash and short-term cash investments at beginning of
period.................................................... 10,891,489 2,042,249
------------ ------------
Cash and short-term cash investments at end of period....... $ 5,247,853 $ 10,891,489
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION
Cash paid for interest...................................... $ 3,793,117 $ 4,474,789
Cash paid for income taxes.................................. $ 112,049 $ 417,769
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Asset acquisitions recorded in connection with barter
transactions.............................................. $ 189,982 $ 112,636
See accompanying notes.
F-171
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND MERGER AGREEMENT
Organization and Nature of Business
Commodore Media, Inc. and Subsidiaries (the "Company") is comprised of
radio stations that derive their revenue from local, regional and national
advertisers. The radio stations are located in the following markets:
Wilmington, Delaware; Hartsdale, Brewster, Patterson, Mt. Kisco, New York;
Huntington, West Virginia -- Ashland, Kentucky; Allentown -- Bethlehem,
Pennsylvania; Fort Pierce -- Stuart -- Vero Beach, Florida; and Fairfield
County, Connecticut. The Company extends credit to its customers in the normal
course of business.
MERGER AGREEMENT
On October 16, 1996, the Company was acquired pursuant to a merger
agreement dated June 21, 1996 with Capstar Broadcasting Partners, Inc.
("Capstar") (the "Merger"), which is an indirect subsidiary of Hicks, Muse, Tate
& Furst Equity Fund III, L.P. The holders of Class A Common Stock and Class B
Common Stock, the holders of employee stock options and the holders of warrants
received $140 per share as consideration for the merger less, in the case of
option and warrant holders, the exercise price per share. In addition, the
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share was redeemed, including all accrued and unpaid dividends.
The Company recognized as other expense approximately $12.7 million in
stock option compensation expense, and approximately $1.4 million of merger
related fees and expenses during the period ended October 16, 1996 in connection
with the Merger.
As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer
resulting in a charge to other expense of approximately $1.1 million during the
period ended October 16, 1996. Furthermore, the Company was required to make an
offer to purchase the outstanding 13 1/4% Senior Subordinated Notes due 2003 at
a purchase price equal to 101% of their accreted value, plus any accrued and
unpaid interest. No requests for repurchase were made by the note holders.
As a result of the Merger, the Company did not proceed with its previously
announced intention to undertake an initial public equity offering and has,
therefore, withdrawn its registration statement filed on Form S-1 on May 17,
1996 with the Securities and Exchange Commission. Included in other expenses
during the period ended October 16, 1996 are approximately $525,000 in various
fees and expenses incurred in connection with this filing.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all subsidiaries, after elimination of intercompany accounts and
transactions.
Short-Term Cash Investments
The Company considers investments which have a remaining maturity of three
months or less at the time of purchase to be short-term cash investments.
F-172
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." Under this method, deferred income taxes are
provided for differences between the book and tax bases of assets and
liabilities.
Risks and Uncertainties
The preparation of consolidated statements of operations and cash flows in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The Company's revenue is principally derived from local broadcast
advertisers who are impacted by the local economy. The Company routinely
assesses the financial strength of its customers. Credit losses are provided for
in the consolidated statements of operations and cash flows in the form of an
allowance for doubtful accounts.
Accounting Periods
The Company maintains its interim consolidated statements of operations and
cash flows based upon the broadcast month end which always ends on the last
Sunday of the calendar month or quarter. The Company's fiscal year end and
fourth quarter ends on December 31.
Property, Plant and Equipment
Depreciation is provided for property, plant and equipment on the
straight-line method based on the following estimated useful lives:
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
Land improvements........................................... 20
Buildings................................................... 20
Furniture, fixtures and equipment........................... 7-10
Broadcasting and technical equipment........................ 7-10
Towers and antennas......................................... 20
Music library............................................... 7
Leasehold improvements...................................... 10-20
Vehicles.................................................... 3
Expenditures for maintenance and repairs are charged to operations as
incurred. Depreciation as a charge to income amounted to approximately $730,000
for the period ended October 16, 1996, and approximately $832,000 for the year
ended December 31, 1995.
Property Held Under Capital Leases
The Company is the lessee of office equipment under capital leases expiring
in various years through 2004. The capital leases are depreciated over their
estimated productive lives of seven to ten years. Total rent
F-173
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
expense was approximately $383,000 for the period ended October 16, 1996 and
approximately $332,000 for the year ended December 31, 1995.
Revenue Recognition
The Company recognizes revenue upon the airing of advertisements.
Intangible Assets
Intangible assets are being amortized by the straight-line method over the
following estimated useful lives:
ESTIMATED LIFE
CLASSIFICATION (YEARS)
-------------- --------------
FCC licenses and goodwill................................... 40
Organization expenses....................................... 5
Network affiliation agreement............................... 5
Covenant not to compete..................................... 5
Tower site lease............................................ 3
Contract rights............................................. 3
Software.................................................... 3
Pre-sold advertising contracts.............................. 1
Amortization of the aforementioned intangible assets included as a charge
to income amounted to approximately $592,000 for the period ended October 16,
1996, and approximately $506,000 for the year ended December 31, 1995.
Amortization of FCC licenses and goodwill amounted to approximately $501,000 for
the period ended October 16, 1996, and approximately $588,000 for the year ended
December 31, 1995.
Deferred Charges
Legal fees, bank loan closing costs and other expenses associated with debt
financing are being amortized using the effective interest rate method.
Amortization of debt expense charged to operations and included in interest
expense amounted to approximately $450,000 for the period ended October 16, 1996
and approximately $385,000) for the year ended December 31, 1995.
Advertising Costs
The Company expenses advertising costs related to its radio station
operations as incurred. Advertising expense amounted to approximately $557,000
for the period ended October 16, 1996 and approximately $754,000 for the year
ended December 31, 1995.
F-174
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Barter Transactions
The fair value of barter and trade-out transactions is included in
broadcast revenue and sales and promotion expense. Barter revenue is recorded
when advertisements are broadcast and barter expense is recorded when
merchandise or services are received. Barter transactions charged to operations
were as follows:
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
Trade sales................................................. $ 3,204,468 $ 3,238,111
Trade expense............................................... (2,981,823) (3,053,811)
----------- -----------
Net barter transactions..................................... $ 222,645 $ 184,300
=========== ===========
2. LONG-TERM DEBT
AT&T Senior Credit Facility
On March 13, 1996, the Company entered into a Senior Credit Facility with
AT&T Commercial Finance Corporation ("AT&T") pursuant to which AT&T will make
available to the Company senior secured (i) revolving loans in an amount up to
$30.0 million and (ii) accounts receivable loans in an amount which shall be the
lesser of (a) $5.0 million or (b) 85% of the net book value of the accounts
receivable of the Company (the "AT&T Senior Credit Facility"). The indebtedness
to AT&T is collateralized by the tangible and intangible assets and the capital
stock of all the Company's subsidiaries. Interest is payable monthly at a rate
of 3.5% over LIBOR (8.94% at October 16, 1996) and principal amortization of the
revolving loans and accounts receivable loans begins June 1, 1998 and November
30, 1997, respectively. The Company pays a commitment fee of .25% every six
months on the unused commitment.
Senior Subordinated Notes
The Senior Subordinated Notes bear cash interest at a rate of 7 1/2% per
annum on the principal amount until May 1, 1998 then at a rate of 13 1/4% per
annum until maturity, with interest payment dates on May 1 and November 1.
In 1995, the Company wrote off the balance of the unamortized deferred
financing costs on its retired debt of $443,521. Inasmuch as the Company had no
current federal taxable income and had fully reserved for its net deferred tax
assets, there was no tax effect attributable to this extraordinary item.
3. PREFERRED STOCK
SENIOR EXCHANGEABLE REDEEMABLE PREFERRED STOCK
On May 1, 1996, the Company entered into a Securities Purchase Agreement
with CIBC WG Argosy Merchant Fund 2, LLC ("CIBC Merchant Fund"), pursuant to
which the CIBC Merchant Fund agreed to purchase from the Company, if and when
requested by the Company, up to an aggregate liquidation value of $12,500,000 of
Senior Exchangeable Redeemable Preferred Stock, Series A, $.01 par value per
share, of the Company in such amounts as the Company requested (the "Preferred
Stock Facility"). In connection with the Stamford Acquisition on May 30, 1996
and the Florida Acquisition on May 31, 1996 (see Note 4), the Company issued
5,700 shares and 4,300 shares, respectively, of Preferred Stock for an aggregate
purchase price of $10,000,000. The Preferred Stock accrued cash dividends at the
rate of 8% per annum and was
F-175
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
redeemed, including accrued dividends, in connection with the Merger on October
16, 1996. In connection with the Preferred Stock Facility, the Company issued to
the CIBC Merchant Fund a warrant to purchase 7,550 shares of the Company's Class
A Common Stock, at an exercise price of $.01 per warrant, which were valued in
the aggregate at the date of issue at $981,500. This warrant was redeemed in
connection with the Merger for $140 per share less the exercise price.
4. CONSUMMATED ACQUISITIONS
On October 16, 1996, the Company purchased certain defined assets of radio
stations WKEE-FM and WKEE-AM in Huntington, West Virginia, WZZW-AM in Milton,
West Virginia, WBVB-FM in Coal Grove, Ohio and WIRO-AM in Ironton, Ohio from
Adventure Communications, Inc. for approximately $7.7 million and certain
defined assets of WFXN-FM in Milton, West Virginia and WMLV-FM in Ironton, Ohio
for approximately $4.3 million. The transactions were funded with borrowings
from the AT&T Senior Credit Facility and with funds provided from Capstar. The
Company provided programming to these stations under Local Marketing Agreement
("LMA") effective April 1996 until the purchase date. In addition, the Company
has an option to purchase WHRD-AM in Huntington, West Virginia and provides
programming services to the station under an LMA arrangement.
On May 31, 1996, the Company purchased certain defined assets of radio
stations WBBE-FM (formerly WKQS-FM), WAVW-FM and WAXE-AM in the Fort
Pierce-Stuart-Vero Beach, Florida market from Media VI for $8.0 million (the
"Florida Acquisition"). The transaction was funded with borrowings from the AT&T
Senior Credit Facility and funds from the Preferred Stock Facility. The Company
sold advertising time on these stations under a Joint Service Agreement from
February 1996 until the purchase date.
On May 30, 1996, the Company purchased certain defined assets of radio
stations WKHL-FM and WSTC-AM in Stamford, Connecticut from Q Broadcasting, Inc.
for $9.5 million (the "Stamford Acquisition"). The transaction was financed with
borrowings from the AT&T Senior Credit Facility and funds from the Preferred
Stock Facility.
On March 27, 1996, the Company purchased (i) certain defined assets of
radio stations WZZN-FM in Mount Kisco, New York, WAXB-FM in Patterson, New York
and WPUT-AM in Brewster, New York from Hudson Valley Growth, L.P. for $5.0
million and (ii) all of the issued and outstanding common stock of Danbury
Broadcasting, Inc., owner of WRKI-FM, and WINE-AM in Brookfield, Connecticut,
plus certain real property for $10.0 million. The transaction was financed with
the Company's existing cash and borrowings under the AT&T Senior Credit
Facility. The Company provided programming to these stations under LMAs from
October 1995 until the purchase date.
On June 27, 1995, the Company purchased the assets (excluding cash and
accounts receivable) and broadcasting license of radio broadcast station WQOL-FM
in Vero Beach, Florida for a total purchase price of approximately $3.0 million.
F-176
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
Unaudited pro forma results of operations for the Company as if the
aforementioned acquisitions had been consummated on January 1, 1995 are as
follows (in thousands):
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
Net revenue................................................. $ 31,505 $ 38,483
Net loss before extraordinary loss.......................... (4,037) (3,673)
Net loss.................................................... (4,037) (4,117)
5. INCOME TAXES
The Company has recorded a provision for income taxes as follows:
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
Current:
Federal................................................... $ -- $ --
State and local........................................... 133,000 140,634
Deferred:
Federal................................................... -- --
State and local........................................... -- --
-------- --------
Total............................................. $$133,000 $140,634
======== ========
The Company did not record a federal tax benefit on the taxable loss for
the period ended October 16, 1996 or for the year ended December 31, 1995 since
it was not assured that they could realize a benefit for such losses in the
future.
The Company received Internal Revenue Service approval and changed its tax
method of accounting for Federal Communications Commission ("the FCC") licenses
for the tax year ended December 31, 1995. The aggregate amount of cumulative
amortization that will be deductible ratably over six taxable years for the
Company and for tax purposes is approximately $12.1 million.
The reconciliation of income tax computed at the U.S. federal statutory
rates to effective income tax expense is as follows:
PERIOD FROM
JANUARY 1,
1996 TO YEAR ENDED
OCTOBER 16, DECEMBER 31,
1996 1995
----------- ------------
Provision at statutory rate............................... $(1,184,000) $(734,695)
State and local taxes..................................... 133,000 140,634
Nondeductible expense..................................... 33,800 8,286
Increase in valuation allowance, net of rate changes...... 1,150,200 726,409
Alternative minimum tax................................... -- --
----------- ---------
Total..................................................... $ 133,000 $ 140,634
=========== =========
F-177
COMMODORE MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF OPERATIONS AND
CASH FLOWS -- (CONTINUED)
6. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with several executives
of the Company including its President and Chief Executive Officer, its
Executive Vice President and Chief Financial Officer and its Executive Vice
President and General Counsel. The agreements generally provide for terms of
employment, annual salaries, bonuses, eligibility for option awards and
severance benefits.
Effective January 1, 1994, the Company entered into an agreement with its
then President and Chief Executive Officer under which he would be employed in
that capacity through 1996 and provided for annual salary requirements and
bonuses, and a Long-Term Incentive Payment ("LTIP"). In lieu of the LTIP, the
Company paid the then President $1.5 million in cash, issued $1.3 million
principal ($1.1 million net of discount) of Senior Subordinated Notes to a trust
for his benefit and agreed to provide $1.5 million in deferred compensation
which accrues interest at a rate of 7% and is payable in 2003. The Company
recorded the deferred compensation on April 21, 1995 at its calculated net
present value of $921,000. The aggregate effect of the employment agreement
restructuring was to charge $1.8 million to long-term incentive compensation
expense during 1995. In addition, the then President's amended employment
agreement extended his date of employment through April 30, 1998, granted stock
options to him to acquire 28,313 shares of Class A Common Stock at an exercise
price of $45 per share and provided for annual bonuses based upon specific
operating results of Capstar Radio.
The Company also amended its then existing employment agreement with its
then Chief Operating Officer on April 21, 1995. The prior employment agreement
provided for a long-term incentive based upon the increase in certain station
values. The amended employment agreement provided for a cash payment of $400,000
on April 21, 1995 and deferred compensation of $346,000 which accrues interest
at a rate of 7% and is payable in 2003. The Company recorded the deferred
compensation on April 21, 1995 at its calculated net present value of $213,000.
The aggregate effect of the employment agreement restructuring was to charge
$188,800 to long-term incentive compensation expense during 1995. In addition,
the amended employment agreement extended his date of employment through April
30, 1999, granted stock options to acquire 28,313 shares of Class A Common Stock
at an exercise price of $45 per share and provides for annual bonuses based upon
specific operating results of the Company.
As a result of the Merger and the change of control effected thereby, the
Company was obligated to satisfy the existing deferred compensation and
employment agreements with its then President and Chief Executive Officer and
its deferred compensation agreement with its then Chief Operating Officer,
resulting in an additional charge to operations of approximately $1.1 million
which was recorded in the period ended October 16, 1996. Furthermore, all stock
options for the aforementioned officers, as well as for all holders, were
redeemed at $140 per share, less the exercise price of $45 per share at the time
of the Merger. The Company's then President and Chief Executive Officer resigned
his position effective October 16, 1996 as required by the Merger Agreement.
7. RELATED PARTY TRANSACTIONS
During the period ended October 16, 1996 and the year ended December 31,
1995, the Company paid the majority stockholder a salary of approximately
$185,000 and $175,000, respectively.
F-178
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Martin Media:
We have audited the accompanying balance sheets of Martin Media (a
California limited partnership) as of December 31, 1997 and 1996 and the related
statements of operations, partners' capital (deficit), and cash flows for each
of the three years in the period ended December 31, 1997 (included at F-180
through F-193). These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin Media, as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-179
MARTIN MEDIA
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
------------ -----------
Current Assets
Cash and equivalents...................................... $ 23,254 $ 2,661,610
Trade accounts receivable, net of allowance for doubtful
accounts of $142,515 and $100,000 as of December 31,
1997 and 1996, respectively............................ 5,658,379 4,726,301
Current maturities of long-term notes receivable, limited
partners............................................... 136,030 132,956
Other receivables......................................... 113,514 100,892
Inventories, raw materials................................ 520,725 209,323
Prepaid expenses.......................................... 1,566,582 1,085,324
------------ -----------
Total current assets.............................. 8,018,484 8,916,406
------------ -----------
Long-Term Notes Receivable, limited partners, less current
maturities................................................ 281,279 317,309
Property and Equipment, net of accumulated depreciation..... 74,863,597 52,367,653
Intangible Assets, net of accumulated amortization.......... 58,446,919 15,872,530
Deposit on purchase option.................................. 463,800 --
------------ -----------
$142,074,079 $77,473,898
============ ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current Liabilities
Current maturities of long-term debt...................... $ 3,690,436 $ 5,339,365
Current maturities of capital lease obligations........... 214,380 135,586
Accounts payable.......................................... 627,590 928,712
Accrued expenses.......................................... 8,112,132 1,569,048
Unearned income........................................... 219,022 112,961
------------ -----------
Total current liabilities......................... 12,863,560 8,085,672
------------ -----------
Long-Term Liabilities
Long-term debt, less current maturities................... 109,232,810 66,752,424
Capital lease obligations, less current maturities........ 447,865 662,245
------------ -----------
Total long-term liabilities....................... 109,680,675 67,414,669
------------ -----------
Commitments (Note 10)
Mandatorily Redeemable
Preferred partnership units............................... 25,000,000 --
------------ -----------
Partners' Capital (Deficit)................................. (5,470,156) 1,973,557
------------ -----------
$142,074,079 $77,473,898
============ ===========
The accompanying notes are an integral part of these statements.
F-180
MARTIN MEDIA
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
The accompanying notes are an integral part of these statements.
F-181
MARTIN MEDIA
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
Balance, beginning of year............................ $ 1,973,557 $ 3,184,665 $ 822,406
Issuance of partnership units....................... -- 5,300,000 --
Redemption of partnership units..................... -- (5,260,230) --
Distributions....................................... -- (327,200) (497,800)
Net income (loss)................................... (7,443,713) (923,678) 2,860,059
----------- ----------- -----------
Balance, end of year.................................. $(5,470,156) $ 1,973,557 $ 3,184,665
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-182
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ -----------
Cash flows from operating activities:
Net income (loss)................................. $ (7,443,713) $ (923,678) $ 2,860,059
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................ 9,282,574 5,364,835 3,339,377
Loss on disposal of assets................... 512,338 458,464 378,358
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable........... (932,078) (1,047,834) 223,315
Increase in other receivables............. (12,622) (72,759) 24,091
(Increase) decrease in inventories, raw
materials............................... (311,402) 105,466 35,645
Increase in prepaid expenses.............. (481,258) (136,610) 53,372
Decrease in accounts payable.............. (301,122) (7,055) (195,463)
Increase in accrued expenses.............. 6,543,084 793,490 24,624
Increase in unearned income............... 106,061 84,915 (14,020)
------------ ------------ -----------
Net cash provided by operating
activities.............................. 6,961,862 4,619,234 6,729,358
------------ ------------ -----------
Cash flows from investing activities:
Principal payments on notes receivable............ 32,956 374,740 20,692
Issuance of notes receivable...................... -- (400,000) --
Proceeds from sale of property and equipment...... 49,460 63,801 79,236
Cash paid for acquisitions........................ (67,164,295) (17,200,000) (1,575,000)
Capital expenditures.............................. (7,750,411) (7,114,708) (1,762,978)
Proceeds from sale of investment.................. -- -- 970,482
Purchase option deposit........................... (463,800) -- --
------------ ------------ -----------
Net cash used in investing activities..... (75,296,090) (24,276,167) (2,267,568)
------------ ------------ -----------
Cash flows from financing activities:
Net (payments)/borrowings on line-of-credit....... -- (1,395,052) 601,324
Proceeds from issuance of long-term debt.......... 41,014,131 75,915,869 1,006,400
Principal payments on long-term debt.............. (318,259) (57,059,619) (3,522,394)
Distributions to partners......................... -- (327,200) (497,800)
Redemption of partnership units................... -- (5,260,230) --
Issuance of mandatorily redeemable preferred
partnership units.............................. 25,000,000 -- --
Issuance of partnership units..................... -- 5,000,000 --
------------ ------------ -----------
Net cash provided (used) by financing
activities.............................. 65,695,872 16,873,768 (2,412,470)
------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents....................................... (2,638,356) (2,783,165) 2,049,320
Cash and cash equivalents at beginning of year...... 2,661,610 5,444,775 3,395,455
------------ ------------ -----------
Cash and cash equivalents at end of year............ $ 23,254 $ 2,661,610 $ 5,444,775
============ ============ ===========
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 8,085,486 $ 6,357,207 $ 5,036,375
============ ============ ===========
Income taxes paid............................ $ -- $ 7,349 $ 800
============ ============ ===========
Supplemental disclosures of noncash investing and financing activities:
During the year ended December 31, 1997 long-term debt in the amount
of $84,845,560 was refinanced.
During the year ended December 31, 1996 long-term debt in the amount
of $1,684,215 was incurred to purchase fixed assets and intangible assets.
During the year ended December 31, 1996 notes receivables to
shareholders in the amount of $300,000 were issued for partnership units.
During the year ended December 31, 1995 long-term debt in the amount
of $318,900 was incurred to purchase sign structures.
The accompanying notes are an integral part of these statements.
F-183
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin Media, a California limited partnership (the Company), was formed in
December, 1984 and operated under the name of Colorado River Markets until
August, 1991. The Company has operating divisions located in Pennsylvania, Ohio,
Connecticut, Washington, D.C., Arizona and Nevada.
The Company owns and leases billboards on a contractual basis nationwide
for the purpose of providing outdoor advertising services. The Company extends
credit in the form of accounts receivable on a short-term basis to businesses
and advertisers doing business in the above noted areas.
Significant accounting policies
Basis of accounting
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less.
Inventories, raw materials
Inventories are stated at the lower of cost or market using the first in,
first out (FIFO) cost method.
Property and equipment
Property and equipment are stated at cost and depreciated over estimated
useful lives primarily using the straight-line method. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives are as follows:
YEARS
-----
Buildings and improvements.................................. 15-31
Posters..................................................... 25
Bulletins................................................... 25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Auto and trucks............................................. 5-7
F-184
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
Under provision of the Internal Revenue Code and the respective state
Taxation Codes, partnerships are not subject to income taxes; any income or loss
realized is taxed to the individual partners. Certain states do impose a minimum
tax (franchise fee).
Intangible assets
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified.
Organization costs, advertising rights, permits and licenses, acquisition
fees, lease rights and goodwill are recorded at cost and are amortized using the
straight-line method over five years.
Loan fees are amortized over the life of the loan to which they are
associated.
Profit sharing plan
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full-time employees
with twelve months of service who are 18 years old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no contributions to the plan.
Fair value of financial instruments
The carrying amount of the long-term debt approximates fair value.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. LONG-TERM NOTES RECEIVABLE, LIMITED PARTNERS
Notes receivable, limited partners at December 31, 1997 and 1996 consisted
of the following:
1997 1996
-------- --------
Barry Heffner, Manager of Pittsburgh Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ $ 18,758 $ 25,036
Mary Ellen Coleman, Manager of Scranton Division, prime plus
2%, collateralized by subscription of one unit of Martin
Media, payable $717 per month including interest, due
September 27, 2001........................................ 18,975 25,229
Brent Baer, Manager of Washington D.C. Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
Thomas Jones, Manager of Las Vegas Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
F-185
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996
-------- --------
David Lamberger, National Sales Manager, 8%, collateralized
by 1/4 of one partnership unit, payable $838 per month
including interest, due December 28, 2001................. $ 69,894 $ 75,000
Lynn Terlaga, Manager of Hartford Division, 8%,
collateralized by 1/4 of one partnership unit, payable
$838 per month including interest, due December 28,
2001...................................................... 69,894 75,000
David Weyrich, 10%, unsecured, payable $833 per month
interest only, due November 27, 1997, paid in full
subsequent to December 31, 1997........................... 100,000 100,000
-------- --------
417,309 450,265
Less current maturities..................................... 136,030 132,956
-------- --------
$281,279 $317,309
======== ========
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
NOTE 3. ACQUISITIONS
During 1997, the Company purchased substantially all the assets and assumed
certain liabilities of three outdoor advertising companies; during 1996, the
Company purchased substantially all of the assets and assumed certain
liabilities of one outdoor advertising company and exchanged partnership
interests and other consideration for substantially all of the assets, and
assumed certain liabilities, for another outdoor advertising company (the
"Exchange"). Funds used to make the acquisitions and facilitate the Exchange
were provided through the Company's credit facility. The majority of the
intangible assets acquired through the acquisitions and Exchange are being
amortized over a five year period. See Note 10 for acquisitions included above
which were acquired from a related party. Acquisitions during 1995 were not
significant.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. For the Exchange, the Company recorded the assets acquired and
liabilities assumed based on the fair value of the partnership interests
granted. Accordingly, the results of operations for the acquisitions, and the
Exchange, have been included in the results of the Company from the respective
effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
1997 1996
----------- -----------
Fair value of tangible assets acquired..................... $20,293,392 $ 8,420,000
Fair value of intangible assets acquired................... 46,870,903 11,870,455
Liabilities assumed........................................ -- (2,790,455)
Book value of partnership interests granted................ -- (300,000)
----------- -----------
Cash paid.................................................. $67,164,295 $17,200,000
=========== ===========
Of the cash paid in 1996, approximately $5 million was utilized to redeem
existing partnership units in connection with the Exchange.
F-186
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES
Prepaid expenses at December 31, 1997 and 1996 consisted of the following:
Major classes of property and equipment and accumulated depreciation at
December 31, 1997 and 1996 are as follows:
1997 1996
----------- -----------
Land....................................................... $10,578,202 $ 936,954
Buildings and improvements................................. 5,349,404 218,947
Posters.................................................... 26,855,790 25,114,090
Bulletins.................................................. 44,189,355 36,314,244
Shop equipment............................................. 722,278 519,319
Office furniture and equipment............................. 649,696 449,391
Autos and trucks........................................... 1,951,625 1,662,820
Construction in process.................................... 402,892 215,744
----------- -----------
90,699,242 65,431,509
Less accumulated depreciation.............................. 15,835,645 13,063,856
----------- -----------
$74,863,597 $52,367,653
=========== ===========
See Note 7 for collateralization of property and equipment.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $2,943,826, $2,624,212 and $2,392,186.
During the years ended December 31, 1997, 1996 and 1995, the Company took
down a number of boards located in the Pittsburgh, Scranton, Hartford, Las Vegas
and Cincinnati divisions. These disposals were initiated by management due to
high operating costs and/or high site lease costs, which resulted in marginal
operating results. Losses on board disposals amounted to $515,056, $440,746 and
$418,957 in the years ended December 31, 1997, 1996 and 1995.
F-187
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets and accumulated amortization at December 31, 1997 and
1996 are as follows:
See Note 7 for collateralization of intangible assets.
Amortization expense for the years ended December 31, 1997, 1996 and 1995
was $6,338,748, $2,740,623 and $947,191.
7. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consisted of the following:
1997 1996
------------ -----------
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $ 60,000,000 $ --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Term B loan, interest at LIBOR plus 2.25%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2005**..................................... 35,000,000 --
Canadian Imperial Bank of Commerce, As administrative
agent for lenders, under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% LIBOR plus 2.75%, collateralized by
accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 17,300,000 --
Jackson Poster Advertising, 8%, collateralized by sign
structures, payable $912 per month including interest,
due December 2000....................................... 29,124 37,381
Dominion Signs, 8%, collateralized by sign structures and
personally guaranteed by E. Thomas Martin, payable
$68,475 plus interest annually, due August 1999......... 136,950 205,425
F-188
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996
------------ -----------
Elaine Perlroth, 7%, collateralized by mortgage, payable
$989 monthly including interest, due November 2008...... $ 90,381 $ 95,715
Ronco Media, non-interest bearing, uncollateralized,
payable $3,000 monthly, due April 2001.................. 120,000 156,000
Ronald Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due July 2001..................... 6,667 8,667
Rose Marie Rieger, non-interest bearing, uncollateralized,
payable $167 monthly, due April 2001.................... 6,667 8,667
Daniel H. Bradley, non-interest bearing, uncollateralized,
payable $1,667 monthly, due April 2001.................. 66,667 86,667
Pamela Lynn Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Kory William Rieger, non-interest bearing,
uncollateralized, payable $1,667 monthly, due April
2001.................................................... 66,667 86,667
Rembrandt Outdoor Services, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 33,456 34,065
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term A Loan, interest at LIBOR plus 2.5%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due March 2003**........................................ -- 40,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Term B Loan, interest at LIBOR plus 3%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due December 2004**..................................... -- 15,000,000
Canadian Imperial Bank of Commerce, as administrative
agent for Lenders under the Credit Agreement dated July
15, 1996, Revolving Line of Credit, interest ranging
from prime plus 1.25% to LIBOR plus 2.50%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable annually, due
March 2003**............................................ -- 16,285,868
------------ -----------
112,923,246 72,091,789
Less current maturities................................... 3,690,436 5,339,365
------------ -----------
$109,232,810 $66,752,424
============ ===========
F-189
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at December 31, 1997 were as
follows:
** Loan has varying interest rates based on Company performance and indexes
found in Credit Agreement dated July 31, 1997. At December 31, 1997 effective
interest rates ranged from 7.1875% to 8.5%.
The Company has entered into interest rate caps primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial bank, having a total notional
principal amount of $135,000,000. This agreement effectively changes the
Company's interest exposure on up to $135,000,000 of floating rate debt to a
fixed 6.5% with a floor of 5.5%. The interest rate cap agreements mature
September 1998 ($35,000,000) and September 2000 ($100,000,000).
During 1997, the Company sold an interest rate floor for a gain of
$440,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable and the cost
associated with the purchased of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
LIBOR rate was 5.9% and 6.5% at December 31, 1997 and 1996, respectively.
8. LONG-TERM CAPITAL LEASE OBLIGATIONS
The Company leases certain sign structures with lease terms through July
2000. Obligations under capital leases have been recorded in the accompanying
financial statements at the discounted present value of future minimum lease
payments. The cost and accumulated amortization for such equipment as of
December 31, 1997 was $1,029,200 and $58,321, respectively. Amortization
included in depreciation expense for the year ended December 31, 1997 was
$41,168. Interest paid on these leases was $130,118 for the year ended December
31, 1997.
F-190
MARTIN MEDIA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments under these capital leases and the net
present value of the future minimum lease payments are as follows:
YEAR ENDING
DECEMBER 31:
------------
1998........................................................ $316,628
1999........................................................ 399,627
2000........................................................ 113,280
--------
Total future minimum lease payments......................... 829,535
Less amount representing interest........................... 167,290
--------
Present value of future minimum lease payment............... 662,245
Less current portion........................................ 214,380
--------
Long-term portion........................................... $447,865
========
9. RELATED PARTY TRANSACTIONS
Transactions occurring between the Company and a related party, which are
not presented elsewhere in these financial statements, are as follows:
Martin and MacFarlane, Inc., a California Corporation (M&M, Inc.), which
has stockholders who are also partners in the Company, performed substantially
all administrative functions for the partnership during the year ended December
31, 1995 and January 1996. Beginning February 1, 1996, administrative functions
were performed by MW Sign Co., the general partner. The partnership pays
management fees approximating 3% of gross revenue, refinancing fees of 4% of all
debt refinanced and acquisition fees of 4% of the purchased price of acquired
companies. On January 1, 1997, management fees increased to 4% of gross revenue.
Total fees paid to M&M, Inc. for the years ended December 31, 1997 and 1996
amounted to $-0- and $78,263, respectively. Total fees paid/accrued to MW Sign
Co. for the years ended December 31, 1997 and 1996 amounted to $11,231,815 and
$5,050,039. Total fees paid to M&M, Inc. and MW Sign Co. for the year ended
December 31, 1995 amounted to $1,111,350.
10. COMMITMENTS
Leases
The Company leases land, buildings, and equipment in connection with its
outdoor advertising business under operating leases. The leasing of land relates
to the posters and bulletins. The Company also leases property, equipment and
buildings to house and support division administrative and field offices.
Future minimum lease payments under cancelable and noncancelable leases at
December 31, 1997 are as follows:
Certain of the Company's noncancelable lease payments are based on a
percentage of revenue generated from the poster or bulletin rather than having a
minimum rental. The percentage of rent ranges from 15% to 20% of revenue. An
estimate of the future payments under these leases has been included in the
above table under posters, bulletins. Historically, rental payments under these
leases have approximated $1,180,000 annually.
Lease expense for the years ended December 31, 1997, 1996 and 1995 was as
follows:
On July 31, 1997 the Company entered into an agreement with Martin &
MacFarlane, Inc. (related party), relative to an agreement Martin & MacFarlane,
Inc. had with another company to purchase certain assets, to acquire certain
assets including sign structures, equipment, and related intangibles located in
the Las Vegas and Colorado River markets for a total purchase price of
$14,350,400. This purchase agreement has two segments, the first of which
provided for the purchase of assets during the year ending December 31, 1997 for
$11,273,400. The second segment of the agreement provides an option to the
Company to purchase additional assets for $3,077,000. Upon execution of the
option agreement, the Company deposited $463,800 in good faith with Martin &
MacFarlane, Inc. The option agreement can only be exercised upon Martin &
MacFarlane, Inc. exercising its option to purchase those assets and other assets
it has under option with the seller; the option agreement expires October 1,
1998.
Preferred partnership units
On December 23, 1997, the Company entered into an agreement to sell
preferred limited partnership units (PPU's), warrants and warrant units to a
select group of purchasers. The Company issued 25,000 PPU's at $1,000 each
($25,000,000), calling for the holders of the PPU's to receive an initial 14%
preferred rate of return, which escalates on certain dates to a maximum of 20%.
The Company can redeem PPU's for 102% of the PPU's capital account amount until
September 23, 1998 and thereafter for 100% of the PPU's capital account amount.
The Company is obligated under the agreement to redeem all outstanding PPU's on
December 23, 2006. Warrants to purchase additional PPU's, based upon terms of
the agreement, shall be issuable upon the 270th day following the purchase date
(December 23, 1997) and quarterly thereafter, if any PPU's shall then be
outstanding.
Credit facilities
On December 23, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce in which their Term B loan maximum borrowing limit was
increased to $40,000,000. As of December 31, 1997, the Company had $5,000,000
available under the term of the loan.
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, Swing Loan is
available in the amount of $5,000,000. As of December 31, 1997, the Company's
outstanding obligation was $-0-.
F-192
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of three outdoor advertising
companies at an aggregate purchase price of $18,350,000. Funds used to make the
purchase were provided through the Company's credit facility.
F-193
MARTIN MEDIA
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
The accompanying note is an integral part of these statements.
F-194
MARTIN MEDIA
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ -----------
Cash flows from operating activities:
Net income................................................ $ 518,300 $ 2,253,353
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 4,935,039 3,192,484
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,467,442) (579,923)
Decrease (increase) in other receivables............. 28,509 (339,238)
Increase in inventories, raw materials............... (755,168) (775,387)
Increase in prepaid expenses......................... (355,358) (241,092)
Decrease in accounts payable......................... (196,683) (13,949)
Decrease in accrued expenses......................... (4,717,062) (693,027)
------------ -----------
Net cash provided (used) by operating
activities..................................... (2,009,865) 2,803,221
------------ -----------
Cash flows from investing activities:
Decrease in notes receivable.............................. 17,492 450,569
Cash paid for acquisitions................................ (15,453,324) (1,863,034)
Capital expenditures...................................... (9,522,314) (4,521,138)
------------ -----------
Net cash used in investing activities............. (24,958,146) (5,933,603)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 25,450,460 956,013
Distributions to partners................................. 1,387,288 (37,565)
------------ -----------
Net cash provided by investing activities......... 26,837,748 918,448
------------ -----------
Net decrease in cash........................................ (130,263) (2,211,934)
Cash at beginning of year................................... 23,254 2,361,610
------------ -----------
Cash at end of period....................................... $ (107,009) $ 149,676
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 5,313,150 $ 2,952,027
============ ===========
The accompanying note is an integral part of these statements.
F-195
MARTIN MEDIA
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-196
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Martin & MacFarlane, Inc.:
We have audited the accompanying balance sheets of Martin & MacFarlane,
Inc. (a California corporation) as of December 31, 1997 and 1996, and the
related statements of income, retained earnings and cash flows for each of the
two years in the period ended December 31, 1997 and six months in the period
ended December 31, 1995 (included at F-198 through F-212). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of December 31, 1997 and 1996 and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 and six
months in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Bakersfield, California
February 13, 1998
F-197
MARTIN & MACFARLANE, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
----------- -----------
Current Assets
Cash and equivalents...................................... $ 138,294 $ 10,519
Trade accounts receivable, less allowance for doubtful
accounts of $96,051 and $100,000 at December 31, 1997
and 1996............................................... 2,973,646 1,836,944
Current maturity of note receivable....................... 6,856 6,206
Other receivables......................................... 78,723 331,419
Inventories............................................... 1,764,872 1,104,190
Prepaid expenses.......................................... 928,416 565,971
Current deferred income taxes............................. 1,441 1,500
----------- -----------
5,892,248 3,856,749
----------- -----------
Note Receivable............................................. 24,381 31,083
Property and Equipment, net of accumulated depreciation..... 23,527,457 20,187,460
Intangible Assets, net of accumulated amortization.......... 11,053,092 3,007,566
Other Assets
Deposits.................................................. 24,197 22,047
Deposit on Purchase Option................................ 5,536,200 --
----------- -----------
5,560,397 22,047
----------- -----------
$46,057,575 $27,104,905
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Bank overdraft............................................ $ 166,083 $ 523,360
Current maturities of long-term debt...................... 690,718 7,460,727
Note payable, bank........................................ -- 800,000
Accounts payable.......................................... 543,648 465,372
Accrued expenses.......................................... 391,069 444,798
Distributions payable..................................... 61,832 61,658
Unearned income........................................... 506,348 84,530
Income taxes payable...................................... 6,408 33,205
----------- -----------
2,366,106 9,873,650
----------- -----------
Long-Term Debt, less current maturities..................... 36,041,494 6,835,699
----------- -----------
Deferred Income Taxes....................................... 102,375 111,008
----------- -----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares, stated
at..................................................... 1,113,070 1,113,070
Retained earnings......................................... 6,434,530 9,171,478
----------- -----------
7,547,600 10,284,548
----------- -----------
$46,057,575 $27,104,905
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-198
MARTIN & MACFARLANE, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
1997 1996 1995
----------- ----------- ----------
Revenues............................................... $22,535,117 $16,994,368 $8,311,295
Cost of sales.......................................... 2,476,991 2,155,013 1,065,709
----------- ----------- ----------
Gross profit................................. 20,058,126 14,839,355 7,245,586
Managers' controlled operating expenses................ 11,318,791 9,534,848 4,982,152
----------- ----------- ----------
Income from managers' operations............. 8,739,335 5,304,507 2,263,434
----------- ----------- ----------
Other operating expenses
Depreciation and amortization expense................ 2,902,472 1,316,520 575,291
Management fees...................................... 2,210,351 472,931 --
Refinance and acquisitions........................... 884,083 85,175 --
----------- ----------- ----------
5,996,906 1,874,626 575,291
----------- ----------- ----------
Operating income............................. 2,742,429 3,429,881 1,688,143
----------- ----------- ----------
Other income (expense)
Interest income...................................... 15,302 9,773 --
Interest expense..................................... (2,537,908) (1,115,772) (552,412)
Other income......................................... 414,138 117,025 125,286
Loss on disposition of assets........................ (207,372) (136,875) (1,744)
----------- ----------- ----------
(2,315,840) (1,125,849) (428,870)
----------- ----------- ----------
Income before income taxes............................. 426,589 2,304,032 1,259,273
Income tax (expense) benefit........................... (23,458) (57,653) 2,972,317
----------- ----------- ----------
Net income................................... $ 403,131 $ 2,246,379 $4,231,590
=========== =========== ==========
The accompanying notes are an integral part of these statements.
F-199
MARTIN & MACFARLANE, INC.
STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
1997 1996 1995
----------- ----------- ----------
Balance, beginning of period........................... $ 9,171,478 $ 8,526,046 $4,418,120
Net income........................................... 403,131 2,246,379 4,231,590
Dividends............................................ (3,140,079) (1,600,947) (123,664)
----------- ----------- ----------
Balance, end of period................................. $ 6,434,530 $ 9,171,478 $8,526,046
=========== =========== ==========
The accompanying notes are an integral part of these statements.
F-200
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND SIX MONTH PERIOD ENDED DECEMBER 31,
1995
1997 1996 1995
------------ ----------- -----------
Cash flows from operating activities:
Net income......................................... $ 403,131 $ 2,246,379 $ 4,231,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,902,472 1,316,520 575,291
Loss on disposition of assets................... 207,372 136,875 1,744
Changes in operating assets and liabilities
(exclusive of acquisitions):
Increase in accounts receivable................. (1,136,702) (410,142) 119,579
(Increase) decrease in other receivables........ 252,697 (312,755) 59,985
Increase in inventory........................... (660,682) (220,401) (115,754)
Increase in prepaid expenses.................... (362,445) (135,739) 200,316
Decrease in deferred income tax asset........... 59 -- --
(Increase) decrease in other
assets -- deposits............................ (2,150) (5,000) 3,124
Increase (decrease) in bank overdraft........... (357,277) 523,360 --
Increase (decrease) in accounts payable......... 78,276 (60,260) (126,935)
Increase (decrease) in accrued expenses......... (53,555) 169,057 (8,073)
Increase (decrease) in unearned income.......... 421,818 1,185 (73,536)
Increase (decrease) in income taxes payable..... (26,797) 9,835 (868,116)
Increase (decrease) in deferred income taxes.... (8,633) 7,826 (2,961,731)
------------ ----------- -----------
Net cash provided by operating
activities............................... 1,657,584 3,266,740 1,037,484
------------ ----------- -----------
Cash flows from investing activities:
Increase in purchase option deposit................ (5,536,200) -- --
Proceeds from certificates of deposit.............. -- -- 200,000
Proceeds from sale of investments.................. -- 11,859 --
Proceeds from sale of property and equipment....... 107,400 217,320 14,082
Cash paid for acquisitions......................... (10,723,930) (5,849,000) (240,000)
Capital expenditures............................... (2,646,168) (748,741) (201,925)
Issuance of notes receivable....................... -- (38,901) (50,000)
Principal payments on notes receivable............. 6,052 1,612 --
Principal payments on notes receivable,
shareholder..................................... -- 50,000 --
------------ ----------- -----------
Net cash used in investing activities...... (18,792,846) (6,355,851) (277,843)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable........................ 21,459,216 5,500,000 809,400
Net (payments) borrowings on line of credit........ (950,000) 800,000 (50,000)
Principal payments on notes payable................ (106,100) (1,975,159) (1,677,500)
Distributions to shareholders...................... (3,140,079) (1,600,947) (123,664)
------------ ----------- -----------
Net cash provided by (used in) financing
activities............................... 17,263,037 2,723,894 (1,041,764)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 127,775 (365,217) (282,123)
Cash and cash equivalents at beginning of year....... 10,519 375,736 657,859
------------ ----------- -----------
Cash and cash equivalents at end of year............. $ 138,294 $ 10,519 $ 375,736
============ =========== ===========
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,634,036 $ 1,093,501 $ 563,494
============ =========== ===========
Payment of income taxes............................ $ 50,255 $ 47,818 $ 857,530
============ =========== ===========
Supplemental disclosures of non cash financing activities:
During the year ended December 31, 1997 long term debt in the amount
of $18,245,035 was refinanced.
The accompanying notes are an integral part of these statements.
F-201
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends short-term credit in the form of accounts
receivable to businesses and advertisers doing business in the above noted
areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CHANGE IN ACCOUNTING PERIOD
Pursuant to the adoption by the Company of S Corporation status for income
tax purposes, the Company changed from a fiscal year end to a calendar year end
for the period ending December 31, 1995, as required by the Internal Revenue
Service, to coincide with shareholders' tax year end. Therefore, the reporting
periods for the financial statements cover the years ended December 31, 1997 and
1996 and six month period ended December 31, 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. Throughout the
year, the Company may have amounts in banks in excess of federally insured
limits and as of December 31, 1997, the Company held funds in one financial
institution in excess of federally insured limits in the amount of $115,360.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred.
F-202
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Estimated useful lives in years are as follows:
YEARS
-----
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over primarily five
year periods.
Covenants not to compete are amortized using the straight-line method over
the contractual period specified, which ranges from five to ten years.
Advertising rights, permits and licenses, and lease rights are amortized
using the straight-line method over five years.
INCOME TAXES
Effective July 1, 1995, the Company's shareholders elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under such
election, the shareholders of an "S" Corporation are taxed individually on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income tax has been included in these financial
statements. State income taxes are provided based on statutory rates. State
income taxes currently payable and deferred relate primarily to temporary
differences from the use of accelerated methods of depreciation and the direct
write-off method of accounting for bad debts.
PROFIT SHARING PLAN
The Company adopted a profit sharing plan which is a qualified pension
trust under Section 401(k) of the Internal Revenue Code. All full time employees
with twelve months of service who are 19 year old or older are eligible to
participate. Each employee may voluntarily contribute up to the lesser of 15% of
their pay or $9,500. The Company has made no matching contributions to the plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the long-term debt approximates fair value.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-203
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
During 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of three outdoor advertising companies; during 1996,
the Company purchased substantially all of the assets and assumed certain
liabilities of four outdoor advertising companies. Concurrently with one of the
1996 acquisitions, the Company exchanged the assets acquired and liabilities
assumed for similar assets and liabilities of another outdoor advertising
company to enable the Company to expand its existing market share in that
locality. The exchange was recorded at the fair market value of the assets
acquired. Funds used to make the acquisitions were provided through the
Company's credit facility. The majority of the intangible assets acquired are
being amortized over a five year period. See Note 13 for acquisitions included
above, which also includes a related party.
The acquisitions were accounted for using the purchase method of accounting
and the purchase price was allocated to the various tangible and intangible
assets acquired. Accordingly, the results of operations for the various
acquisitions have been included in the results of the Company from the
respective effective dates.
A summary of the cash consideration and allocation of the purchase price as
of the acquisition dates are as follows:
1997 1996
----------- ----------
Fair value of tangible assets acquired...................... $ 2,756,703 $3,302,000
Fair value of intangible assets acquired.................... 9,199,897 2,597,000
Liabilities assumed......................................... (1,232,670) (50,000)
----------- ----------
Cash paid................................................... $10,723,930 $5,849,000
=========== ==========
3. NOTE RECEIVABLE
1997 1996
------- -------
Ferguson Henderson Investments, 10%, secured by real
property, payable $806 monthly, due November 10, 2001..... $31,237 $37,289
Less current maturity....................................... 6,856 6,206
------- -------
$24,381 $31,083
======= =======
4. INVENTORIES
Inventories are as follows at December 31, 1997 and 1996:
1997 1996
---------- ----------
Raw material................................................ $ 244,328 $ 139,309
Winery:
Materials and grape production costs...................... 198,033 138,266
In process................................................ 746,996 494,817
Finished goods............................................ 529,953 299,240
Tasting room, miscellaneous and resale.................... 45,562 32,558
---------- ----------
$1,764,872 $1,104,190
========== ==========
F-204
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PREPAID EXPENSES
Prepaid expenses consist of the following at December 31, 1997 and 1996:
Depreciation expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,468,013, $1,086,108, and $522,293,
respectively.
7. INTANGIBLE ASSETS
Intangible assets and accumulated amortization are as follows at December
31, 1997 and 1996:
Amortization expense for the years ended December 31, 1997 and 1996 and the
six months ended December 31, 1995 was $1,434,459, $230,412, and $52,998,
respectively.
F-206
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996:
1997 1996
----------- -----------
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Term A loan, interest at LIBOR plus 2.75%,
collateralized by accounts receivable, inventory, sign
structures, and intangible assets, payable quarterly,
due June 2004**......................................... $30,000,000 $ --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Revolving Line of Credit, interest ranging
from prime plus 2% or LIBOR plus 2.75%, collateralized
by accounts receivable, inventory, sign structures, and
intangible assets, payable quarterly, due June 2004**... 3,400,000 --
Canadian Imperial Bank of Commerce, as administrative
agent for lenders under the Credit Agreement dated July
31, 1997, Swing Loan, interest ranging from prime plus
2% or LIBOR plus 2.75%, collateralized by accounts
receivable, inventory, sign structures, and intangible
assets, payable at termination date, due June 2004**.... 1,455,565 --
Palmer Outdoor Advertising, Inc., 10.5%, collateralized by
sign structures, equipment, and inventory, payable
$10,266 monthly including interest, due January 2002.... 406,349 --
Anthony E. and Laverne L. Brum, 7%, collateralized by deed
of trust, payable $1,742 monthly including interest, due
August 2004............................................. 111,067 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $394 monthly including interest, due March
2001.................................................... 13,443 --
American Commercial Bank, 8%, collateralized by vehicle,
payable $474 monthly including interest, due March
2001.................................................... 16,176 --
William H. and Jannette L. Kunz, 12.25%, uncollateralized,
payable $6,631 monthly including interest, due May
2010.................................................... 505,043 --
LarMark, Inc., non-interest bearing, unsecured, due
January 1998............................................ 425,000 --
Virgil and Ruth Rose, 7%, collateralized by deed of trust,
payable $931 monthly including interest, due February
2026.................................................... 137,315 138,822
Paragon Outdoor Advertising, non-interest bearing,
uncollateralized, payable $608 monthly, due July 2001... 26,157 33,456
Gaechter Outdoor Advertising, non-interest bearing,
uncollateralized, payable in decreasing annual
installments ranging from $28,000 to $21,600, due August
2001.................................................... 96,000 124,000
Ken Lyons and Michael Burkett, non-interest bearing,
uncollateralized, payable $710 monthly, due May 2001.... 29,097 37,613
F-207
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996
----------- -----------
Pesenti Winery, noninterest bearing, collateralized by
sign structure, payable $1,500 per year, due December
2003.................................................... 9,000 10,500
Advanced Outdoor, noninterest bearing, collateralized by
sign structures, payable $9,500 per month, due December
1998.................................................... 102,000 214,000
Antelope Valley Bank, 8.5%, collateralized by vehicle,
payable $466 monthly including interest, payable August
2001.................................................... -- 21,471
Don Enger and Clayton Enger, 8.5%, collateralized by deed
of trust, payable $256 monthly including interest, due
July 2001............................................... -- 11,648
Massachusetts Mutual Life Insurance Co., 11.05%,
unsecured, payable $500,000 per year beginning November
11, 1994, interest payable quarterly, due November
1999.................................................... -- 1,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year, interest payable quarterly,
due August 1999......................................... -- 2,062,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1996, interest payable quarterly, due June 2002......... -- 3,000,000
Bank of Santa Maria, interest at prime plus 2.5%,
collateralized by deed of trust, payable $1,188 per
month including interest, due May 2002.................. -- 119,695
Bank of Santa Maria, 9.5%, collateralized by vehicle,
payable $1,168 per month including interest, due August
1997.................................................... -- 4,244
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 2000......... -- 6,771
Estates Trust, Inc., 9%, collateralized by deed of trust
and personally guaranteed by E. Thomas Martin, payable
$862 per month including interest, due October 2009..... -- 78,578
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 1998................ -- 20,000
Christine and Alice Henderson, 9%, collateralized by deed
of trust, payable $805 per month including interest, due
April 2011.............................................. -- 96,034
Central Coast Federal Land Bank, 7.5%, collateralized by
winery deed of trust, products and crops inventory and
accounts receivable, payable $7,126 per month including
interest, due November 2015............................. -- 797,081
Central Coast Production Credit Association, 9.75%,
collateralized by winery accounts receivable and
inventory, interest payable quarterly, due January
1999.................................................... -- 150,000
Canadian Imperial Bank of Commerce, interest at LIBOR plus
2.5%, collateralized by the Amarillo Division's accounts
receivable, inventory, sign structures and intangible
assets and personally guaranteed by E. Thomas Martin and
David Weyrich, interest payable monthly, due May
1997**.................................................. -- 5,500,000
F-208
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996
----------- -----------
Central Coast Production Credit Association, interest at
prime plus 1.5%, collateralized by winery equipment,
payable $5,590 monthly including interest, due August
2000.................................................... -- 198,165
Homer Hensley and Rick Hensley, 8.5%, collateralized by
deed of trust, payable $1,231 monthly including
interest, due January 2001.............................. -- 50,813
Paragon Outdoor Advertising, 8%, collateralized by sign
structures, payable $2,636 monthly including interest,
due July 2001........................................... -- 121,035
----------- -----------
36,732,212 14,296,426
Less current maturities................................... 690,718 7,460,727
----------- -----------
$36,041,494 $ 6,835,699
=========== ===========
Aggregate maturities of long-term debt at December 31, 1997 are as follows:
** Loan has varying interest rates based on Company performance and indexes
found in the Credit Agreement dated July 31, 1997. At December 31, 1997 the
effective interest rates ranged from 7.1875% to 8.5%.
The Company has entered into an interest rate cap primarily to protect
against rising interest exposure of its floating rate long-term debt. The
difference to be paid or received on the cap is included in interest expense as
payments are made or received. At December 31, 1997, the Company had outstanding
interest rate cap agreements with two commercial banks having a total notional
principal amount of $50,000,000. This agreement effectively changes the
Company's interest exposure on $50,000,000 of floating rate debt to a fixed 6.5%
with a floor of 5.5%. The interest rate cap agreement matures September 18,
2000.
During 1997, the Company sold an interest rate floor for a gain of
$220,000. This gain is included in other income.
The counterparties to the Company's derivative financial instrument
contract are substantial and creditworthy commercial banks which are recognized
market makers. Neither the risks of counterparty nonperformance nor the economic
consequence of counterparty nonperformance associated with these contracts were
considered by the Company to be material.
Interest expense consists of interest on notes payable, management fees and
the cost associated with the purchase of the interest rate cap instrument.
Prime rate was 8.5% and 8.25% at December 31, 1997 and 1996, respectively.
F-209
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LIBOR rate was 5.938% and 5.625% at December 31, 1997 and 1996,
respectively.
9. NOTE PAYABLE, BANK
Note payable, bank is as follows at December 31, 1997 and 1996:
1997 1996
---- --------
Heritage Oaks Bank, interest at prime plus .5%,
uncollateralized, interest payable monthly, due May
1997...................................................... $ -- $800,000
==== ========
Prime rate was 8.25% at December 31, 1996.
10. DISTRIBUTIONS
In January, May, August, and October 1997 and January, May, August, and
October 1996 and in July and October 1995, the Company declared a $.75 per share
cash distribution for 82,443 shares outstanding. At December 31, 1997 and 1996,
$61,832 and $61,658 were payable January 1, 1998 and 1997, respectively.
Subsequent to conversion of the Company to an S-corporation, effective July 1,
1995, the Company began making distributions equal to approximately 49% of
estimated taxable income to its' shareholders to cover their tax liabilities.
Distributions during the year ended December 31, 1997, amounted to $3,140,079,
including a $2,000,000 special distribution occurring as a result of an
acquisition. Distributions during the year ended December 31, 1996, related to
1995 and 1996 taxable income, amounted to $1,353,618.
11. DEFERRED INCOME TAXES
For state tax purposes, the applicable states do recognize "S" Corporation
status; however, they still impose a tax at the corporate level, generally at a
rate significantly lower than the regular corporate rate. Deferred tax assets
and liabilities relate to temporary differences associated with state income
taxes.
Income tax expense (benefit) for the years ended December 31, 1997 and 1996
and six months ended June 30, 1995 consisted of the following:
Deferred income taxes arise primarily from temporary differences due to use
of accelerated depreciation methods for income tax purposes and the
straight-line method and the use of the allowance method of accounts receivable
for financial reporting purposes.
F-210
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. RELATED PARTY TRANSACTIONS
Through February 1, 1996 the Company provided management services to Martin
Media, a company having common shareholders/partners, at a rate approximating 3%
of Martin Media's gross revenue. Management fees of $78,263 were received by the
Company from Martin Media during the year ended December 31, 1996.
Subsequent to December 31, 1995, and effective February 1, 1996, the
Company divested itself of all management and administrative employees and
contracted with M.W. Sign Company, a company wholly owned by E. Thomas Martin
and David Weyrich, to provide the Company with management services at 3% of
gross revenue. As of January 1, 1997, management fees increased to 4% of gross
revenue. Management fees of $895,281 and $472,931 were paid to M.W. Sign Company
during the years ended December 31, 1997 and 1996, respectively.
13. COMMITMENTS
Leases:
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard space. The Company also leases office
and shop buildings which are located in different geographic areas within the
various divisions. A portion of these are long-term leases.
Lease expense for the years ended December 31, 1997 and 1996 and six months
ended December 31, 1995 was $4,748,420, $2,333,218 and $1,064,875, respectively.
Future minimum lease payments under noncancellable leases at December 31,
1997 are as follows:
On August 1, 1995, the Company entered into a lease with Outdoor Systems
Company of Kansas City. Under the terms of the lease Outdoor Systems leased 87
outdoor advertising structures from the Company for $12,500 per month. The
agreement terminated December 31, 1997.
Acquisition, purchase and sales options
On July 31, 1997, the Company entered into an agreement with another
company to acquire certain assets, including sign structures, equipment, and
related intangibles located in Nevada, Arizona, and California for a total
purchase price of $60,000,000. This purchase agreement has two segments, the
first of which provided for the purchase of assets totaling $20,500,000.
Simultaneously, and as part of the master agreement, the Company entered into an
agreement with Martin Media (related party) to sell them those assets located in
their geographical service area, primarily the Las Vegas and Colorado River
markets, for $11,273,400. The Company's net acquisition price under the first
segment of the agreement was $9,226,600.
F-211
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The second segment of the agreement provides an option for the Company to
purchase additional assets for $39,500,000. As part of this transaction, the
Company has also provided Martin Media with an option to purchase the assets
located in the Las Vegas and Colorado River markets for $3,077,000. The
Company's net acquisition price for assets to be received under the second
segment of the agreement will be $36,423,000.
Upon execution of the option agreement, the Company deposited $6,000,000 in
good faith with the seller. Similarly, Martin Media deposited $463,800 with the
Company resulting in a net deposit of $5,536,200. The option agreement expires
October 1, 1998. Should the Company not exercise the option, the seller holds an
option agreement whereby it can repurchase the assets originally sold to the
Company and assets owned by the Company in and around the Bakersfield area.
As part of the option agreement, the Company will manage those assets
covered by the option agreement. The payment for the use of these assets through
the option period will approximate $285,000 per month. Revenue earned through
the managed assets is subject to the 4% management fee paid to M.W. Sign, Inc.
Credit facility
On July 31, 1997, the Company entered into an agreement with Canadian
Imperial Bank of Commerce, as administrative agent for Lenders under the credit
agreement dated July 31, 1997. Under the terms of this agreement, the Term B
Loan is available to fund future acquisitions in the amount of $20,000,000. As
of December 31, 1997, the Company's outstanding obligation was $-0-.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of one outdoor advertising company at
an aggregate purchase price of $12,500,000. Funds used to make the purchase were
provided through the Company's existing credit facility.
F-212
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Martin & MacFarlane, Inc.
Paso Robles, California
We have audited the accompanying balance sheet of Martin & MacFarlane, Inc.
as of June 30, 1995 and the related statements of income, retained earnings and
cash flows for the year then ended (included at F-214 through F-224). These
financial statements are the responsibility of Martin & MacFarlane, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Martin & MacFarlane, Inc. as
of June 30, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
BARBICH LONGCRIER HOOPER & KING
ACCOUNTANCY CORPORATION
By: /s/ GEOFFREY B. KING, CPA
--------------------------------
Geoffrey B. King, CPA
Bakersfield, California
August 25, 1995
F-213
MARTIN & MACFARLANE, INC.
BALANCE SHEET
JUNE 30, 1995
ASSETS
1995
-----------
Current Assets
Cash and equivalents (Note 7)............................. $ 351,705
Restricted cash (Note 6).................................. 306,154
Certificates of deposit................................... 200,000
Investments............................................... 8,400
Trade accounts receivable, less allowance for doubtful
accounts of $100,000................................... 1,546,381
Other receivables......................................... 78,649
Inventories (Note 2)...................................... 768,035
Prepaid expenses (Note 3)................................. 630,548
Current deferred income taxes (Note 10)................... 145,554
-----------
4,035,426
-----------
Property and Equipment, net of accumulated depreciation
(Notes 4, 6 and 7)........................................ 16,872,469
-----------
Intangible Assets, net of accumulated amortization (Note
5)........................................................ 764,898
-----------
Other Assets................................................ 20,171
-----------
$21,692,964
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 6)............. $ 1,848,465
Note payable, bank (Note 7)............................... 200,000
Accounts payable.......................................... 652,567
Accrued expenses.......................................... 319,021
Dividends payable (Note 9)................................ 26,451
Unearned income........................................... 156,881
Income taxes payable (Note 10)............................ 891,486
-----------
4,094,871
-----------
Long-Term Debt, less current maturities (Note 6)............ 8,857,936
-----------
Long-Term Deferred Income Taxes (Note 10)................... 3,208,967
-----------
Commitments (Note 13)
Stockholders' Equity
Common stock, no par or stated value, authorized 150,000
shares, issued and outstanding 82,443 shares (Note
9)..................................................... 1,113,070
Retained earnings......................................... 4,418,120
-----------
5,531,190
-----------
$21,692,964
===========
The accompanying notes are an integral part of this balance sheet.
F-214
MARTIN & MACFARLANE, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1995
1995
-----------
Revenues.................................................... $16,168,763
Cost of sales............................................... 2,045,552
-----------
Gross profit...................................... 14,123,211
Managers' controlled operating expenses..................... 10,070,408
-----------
Income from managers' operations.................. 4,052,803
-----------
Other operating expenses
Depreciation and amortization expense..................... 1,100,305
-----------
Operating income.................................. 2,952,498
-----------
Other income (expense)
Interest expense.......................................... (1,313,456)
Other income.............................................. 152,804
Gain on disposition of assets............................. 2,405,522
Employee separation expense............................... (269,803)
-----------
Income before income taxes.................................. 3,927,565
Income tax expense (Note 10)........................... 1,519,542
-----------
Net income........................................ $ 2,408,023
===========
The accompanying notes are an integral part of this statement.
F-215
MARTIN & MACFARLANE, INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1995
1995
----------
Balance, beginning of year.................................. $2,195,593
Net income................................................ 2,408,023
Dividends (Note 9)........................................ (185,496)
----------
Balance, end of year........................................ $4,418,120
==========
The accompanying notes are an integral part of this statement.
F-216
MARTIN & MACFARLANE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1995
1995
-----------
Cash flows from operating activities:
Net income................................................ $ 2,408,023
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,100,305
Gain on disposition of assets.......................... (2,405,522)
Increase in deferred income taxes...................... 469,749
Changes in operating assets and liabilities:
Increase in accounts receivable........................ (57,463)
Increase in other receivables.......................... (66,187)
Decrease in inventory.................................. 11,117
Decrease in prepaid expenses........................... 34,520
Increase in other assets............................... (9,065)
Increase (decrease) in accounts payable................ 5,887
Increase (decrease) in accrued liabilities............. (176,570)
Increase in unearned income............................ 30,106
Increase (decrease) in income taxes payable............ 820,732
-----------
Net cash provided by operating activities......... 2,165,632
-----------
Cash flows from investing activities:
Proceeds from sale of investments......................... 5,000
Increase in certificates of deposit....................... (200,000)
Proceeds from sale of fixed assets........................ 2,656,384
Capital expenditures...................................... (736,258)
Construction of capital improvements...................... (281,102)
Principal payments on loans and notes receivable.......... 32,000
Purchase of intangible assets............................. (310,001)
-----------
Net cash provided by investing activities......... 1,166,023
-----------
Cash flows from financing activities:
Proceeds from notes payable............................... 1,007,317
Principal payments on notes payable....................... (3,946,286)
Dividends paid............................................ (185,496)
-----------
Net cash used in financing activities............. (3,124,465)
-----------
Net increase in cash and cash equivalents................... 207,190
Cash and cash equivalents at beginning of year.............. 450,669
-----------
Cash and cash equivalents at end of year.................... $ 657,859
===========
Unrestricted cash........................................... $ 351,705
Restricted cash............................................. 306,154
-----------
$ 657,859
===========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,339,278
===========
Payment of income taxes................................... $ 229,061
===========
Schedule of noncash investing:
The Company entered into an exchange agreement with National Outdoor
Media (3M) during the year ended June 30, 1995. In accordance with the
terms of the exchange agreement, the Company traded boards in Kansas City,
Missouri to 3M in exchange for posters and bulletins in Bakersfield,
California and Kansas at a value of $1,033,850 and $2,614,150 cash.
The accompanying notes are an integral part of this statement.
F-217
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Martin & MacFarlane, Inc. (the Company) was incorporated December 2, 1971.
The Company owns, leases, and manages billboards on a contractual basis
nationwide for the purpose of providing outdoor advertising services. The
Company also owns and operates a small winery located in Paso Robles,
California. The Company extends credit in the form of accounts receivable to
businesses and advertisers doing business in the above noted areas.
Significant accounting policies
BASIS OF ACCOUNTING
The financial statements are prepared on an accrual basis, which recognizes
income when earned and expenses when incurred.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less. As of June 30,
1995, the Company held funds of $646,293 in one financial institution.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are recognized under the allowance method of accounting which is
based on an average of actual write-offs in past years.
INVESTMENTS
Investments in marketable equity securities are carried at the lower of
cost or market. Decline in market values below cost, which are temporary in
nature, are not recognized as losses until the decline in value is deemed
permanent or until the security is sold.
INVENTORY
Inventory is valued at the lower of cost or market. Valuation is determined
using the first-in, first-out method.
F-218
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over estimated
useful lives on a straight-line or accelerated basis. Repairs and maintenance
and small equipment purchases are expensed as incurred. Expenditures which
significantly increase asset values or extend useful lives are capitalized.
Estimated useful lives in years are as follows:
YEARS
-----
Buildings and improvements.................................. 15-31
Posters..................................................... 7-25
Bulletins................................................... 7-25
Shop equipment.............................................. 3-10
Office furniture and equipment.............................. 5-10
Autos and trucks............................................ 3-7
Irrigation equipment........................................ 7-30
Vineyards................................................... 10-25
INTANGIBLE ASSETS
Goodwill is recorded at cost and is amortized using the straight-line
method over a forty year period.
Covenants not to compete are recorded at cost and are amortized using the
straight-line method over the contractual period specified, which ranges from
five to ten years.
INCOME TAXES
Effective July 1, 1993, as required by professional standards, the Company
adopted Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Deferred income taxes are provided on timing differences between
financial statement and taxable incomes. Timing differences arise primarily from
the use of the accelerated methods of depreciation, the direct write-off method
of accounting for bad debts, and the carryforward of net operating losses for
income tax purposes. Determination of current or long-term status of the asset
or liability is based upon when the particular timing difference reverses.
2. INVENTORIES
Inventories are as follows at June 30, 1995:
1995
--------
Raw material................................................ $ 84,383
Winery:
Materials and grape production costs...................... 141,255
In process................................................ 162,669
Finished goods............................................ 359,060
Tasting room, miscellaneous and resale.................... 20,668
--------
$768,035
========
F-219
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PREPAID EXPENSES
Prepaid expenses consist of the following at June 30, 1995:
Major classes of property and equipment and accumulated depreciation are as
follows at June 30, 1995:
1995
-----------
Outdoor Advertising
Buildings and improvements................................ $ 500,731
Posters................................................... 5,987,468
Bulletins................................................. 13,850,302
Shop equipment............................................ 278,749
Office furniture and equipment............................ 191,692
Autos and trucks.......................................... 1,063,156
Land...................................................... 414,472
Construction in process, boards........................... 69,038
-----------
22,355,608
Less accumulated depreciation............................. 7,105,290
-----------
15,250,318
-----------
Winery
Buildings and improvements................................ 664,515
Irrigation and wells...................................... 45,752
Vineyards................................................. 278,219
Landscaping............................................... 26,194
Auto...................................................... 19,500
Vineyard equipment........................................ 119,142
Winery equipment.......................................... 320,720
Office furniture and equipment............................ 37,604
Land...................................................... 206,133
-----------
1,717,779
Less accumulated depreciation............................. 755,093
-----------
962,686
-----------
F-220
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1995
-----------
Corporate
Buildings and improvements................................ $ 654,970
Office furniture and equipment............................ 267,308
Land...................................................... 42,783
-----------
965,061
Less accumulated depreciation............................. 305,596
-----------
659,465
-----------
$16,872,469
===========
Depreciation expense for the year ended June 30, 1995 was $1,021,709.
5. INTANGIBLES
Intangible assets and accumulated amortization are as follows at June 30,
1995:
1995
----------
Goodwill.................................................... $ 438,965
Covenants not to compete.................................... 69,000
Advertising rights.......................................... 136,100
Permits and licenses........................................ 168,567
Lease rights................................................ 335,001
----------
1,147,633
Less accumulated amortization............................... 382,735
----------
$ 764,898
==========
Amortization expense for the year ended June 30, 1995 was $78,596.
6. RESTRICTED CASH
Restricted cash at June 30, 1995 consisted of the following:
1995
--------
Cash, interest bearing account, holdback account, held for
the mutual benefit of the Company and National Advertising
Company, by Chicago Title & Trust Company, until released
by joint order of the parties. Cash is to be released
within twelve months of the June 30, 1995 balance sheet
date. Cash subsequently received July 7, 1995............. $306,154
========
F-221
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1995:
1995
-----------
Federal Land Bank, 5.75% and 6.73%, at 1995 and 1994,
collateralized by first trust deed, payable $3,510 per
month including interest, due May 1, 2011................. $ 410,068
Massachusetts Mutual Life Insurance Co., 11.05%, unsecured,
payable $500,000 per year beginning November 11, 1994,
interest payable quarterly, due November 15, 1999......... 2,500,000
Massachusetts Mutual Life Insurance Co., 10.9%, unsecured,
payable $687,500 per year beginning August 15, 1992,
interest payable quarterly, due August 15, 1999........... 3,437,500
Massachusetts Mutual Life Insurance Company, 11.55%,
unsecured, payable $500,000 per year beginning June 1,
1995, interest payable quarterly, due June 1, 2002........ 3,500,000
Boatmen's First National Bank, interest at prime plus 1.5%,
collateralized by first deed of trust, payable $1,420 per
month including interest, due July 8, 2002................ 91,056
Citizens Bank of Paso Robles, interest at prime plus 2.5%,
collateralized by first trust deed, payable $1,188 per
month including interest, due May 13, 2002................ 124,134
Sierra Outdoor, 8%, collateralized by bulletins, payable
$940 per month including interest, due April 15, 1996..... 9,065
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $555 per month
including interest, due August 15, 1997................... 12,962
Citizens Bank of Paso Robles, interest at 9.5%,
collateralized by vehicle, payable $613 per month
including interest, due August 15, 1997................... 14,206
Alta and Fred Higginbotham, 8%, collateralized by deed of
trust, payable $150 per month, due January 1, 2000........ 8,544
Estates Trust, Inc., 9%, collateralized by deed of trust,
payable $862 per month including interest, due October 1,
2009...................................................... 82,916
Barbara Lehmann, 10%, collateralized by deed of trust,
interest payable monthly, due March 30, 1998.............. 20,000
Christine and Alice Henderson, 9%, collateralized by deed of
trust, payable $805 per month including interest, due
April 8, 2011............................................. 97,450
Pesenti Winery, non-interest bearing, collateralized by sign
structure, payable $1,500 per year, due December 15,
2003...................................................... 13,500
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $8,500 per month, due December
10, 1998.................................................. 357,000
Advanced Outdoor, non-interest bearing, collateralized by
sign structures, payable $1,000 per month, due October 1,
1997...................................................... 28,000
-----------
10,706,401
Less current maturities..................................... 1,848,465
-----------
$ 8,857,936
===========
Prime rate was 9% at June 30, 1995.
F-222
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt at June 30, 1995 are as follows:
Note payable, bank is as follows at June 30, 1995:
1995
--------
Citizens Bank of Paso Robles, interest at 8.5%,
collateralized by certificate of deposit, annually
renewable on April 3, interest payable monthly, due April
3, 1996................................................... $200,000
========
Prime rate was 9% at June 30, 1995.
9. DIVIDENDS PAYABLE
In January 1995, the Company declared a $.50 per share cash dividend, for
82,443 shares outstanding. In May 1995 the Company declared a $.75 per share
dividend, for 82,443 shares outstanding. At June 30, 1995 $26,451 was payable
July 1, 1995.
10. DEFERRED INCOME TAXES
Income tax expense for the year ended June 30, 1995 is computed under SFAS
109 and consisted of the following:
FEDERAL STATE TOTAL
---------- -------- ----------
Current........................................... $ 808,602 $241,191 $1,049,793
Deferred.......................................... 657,023 100,162 757,185
Tax benefit of net operating loss carryforward.... (251,439) (35,997) (287,436)
---------- -------- ----------
Income tax expenses............................... $1,214,186 $305,356 $1,159,542
========== ======== ==========
Components of deferred income tax balances at June 30, 1995 consisted of:
FEDERAL STATE TOTAL
----------- -------- ----------
Current deferred tax assets....................... $ 136,254 $ 9,300 $ 145,554
========== ======== ==========
Long-term deferred tax liabilities................ $2,539,860 $669,107 $3,208,967
========== ======== ==========
Deferred income tax liabilities arise primarily from timing differences due
to use of accelerated depreciation methods for income tax purposes and the
straight-line method for financial reporting purposes.
F-223
MARTIN & MACFARLANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax assets arise primarily from the application of federal and
state net operating loss carryovers.
At June 30, 1995, the Company had alternative minimum tax credits in the
amount of $16,837, available to offset future taxes. Tax credits are included in
deferred tax assets.
11. RELATED PARTY TRANSACTIONS
The following transaction occurring between the Company and a related
party, which is not presented elsewhere in these financial statements, is as
follows:
Martin Media, which has partners who are also stockholders in the Company,
contracts the Company to perform management duties. Martin Media pays a
management fee to the Company which is approximately 3% of Martin Media's gross
revenue. Management fees of $986,356 were received from the partnership during
the fiscal year ending June 30, 1995.
12. PROFIT SHARING PLAN
Discretionary contributions under a defined contribution profit sharing
plan, which are determined by the Company's Board of Directors, have been
accrued to a trust for the benefit of qualified employees in the amount of
$50,000 for the year ended June 30, 1995. All costs are funded currently.
13. COMMITMENTS
The Company leases land in connection with its outdoor advertising posters
and panels as well as for office and yard spaces. These are long-term operating
leases which the Company and lessor have the option to terminate with thirty
days notice.
Lease expense for the year ended June 30, 1995 was $2,218,480.
The Company leases office and shop buildings which are located at various
divisions. A portion of these are long-term leases.
Future minimum lease payments under noncancellable leases at June 30, 1995
are as follows:
Years ending June 30,
1996...................................................... $ 47,747
1997...................................................... 22,665
1998...................................................... 18,711
1999...................................................... 19,944
2000...................................................... 19,944
Thereafter................................................ 121,830
--------
$250,841
========
On August 1, 1995, the Company entered into a lease with Gannett Outdoor
Company of Kansas City. Under the terms of the lease, Gannett Outdoor is leasing
87 outdoor advertising structures from the Company for $12,500 per month. The
agreement will terminate on December 31, 1997. In addition, Gannett Outdoor
shall have the right to exercise an option to purchase these structures at any
time on or after November 2, 1995 and prior to June 30, 1997 for the option
price of $1,030,000.
F-224
MARTIN & MACFARLANE, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- ----------
Income...................................................... $16,352,832 $9,717,160
Cost of sales............................................... 1,620,010 1,151,641
----------- ----------
Gross profit...................................... 14,732,822 8,565,519
Managers' controlled operating expenses..................... 8,323,130 5,033,818
----------- ----------
Income from managers' operations.................. 6,409,692 3,531,701
Other operating expenses:
Depreciation and amortization............................. 1,676,518 909,068
Management fees........................................... 1,672,981 98,132
Refinance and acquisition................................. 103,614 39,801
----------- ----------
3,453,113 1,047,001
Operating income.................................. 2,956,579 2,484,700
Nonoperating income (expenses):
Interest expense.......................................... (1,928,998) (796,203)
----------- ----------
(1,928,998) (796,203)
----------- ----------
Income before income taxes.................................. 1,027,581 1,688,497
Income tax expense.......................................... (9,992) --
----------- ----------
Net income........................................ $ 1,017,589 $1,688,497
=========== ==========
The accompanying note is an integral part of these statements.
F-225
MARTIN & MACFARLANE, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
------------ -----------
Cash flows from operating activities:
Net income................................................ $ 1,017,589 $ 1,688,497
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 1,676,518 909,068
Changes in operating assets and liabilities (exclusive
of acquisitions):
Increase in accounts receivable...................... (1,111,203) (118,870)
Increase in other receivables........................ (6,167) 279,700
Decrease in inventories, raw materials............... 75,728 117,325
Increase in prepaid expenses......................... (334,730) (225,219)
Decrease in deferred income tax asset................ 59 --
Increase in other assets............................. (125,142) (1,442,229)
Decrease in accounts payable......................... (711,997) 4,494,655
Decrease in accrued expenses......................... (121,962) (152,733)
Decrease in accrued income........................... (10,788) (64,230)
------------ -----------
Net cash provided (used) by operating
activities..................................... 347,905 5,485,964
Cash flows from investing activities:
Decrease (increase) in notes receivable................... 29,722 (22,129)
Change in intangible assets............................... (10,768,268) (810,001)
Capital expenditures...................................... (4,879,517) (1,821,808)
------------ -----------
Net cash used in investing activities............. (15,618,063) (2,653,938)
------------ -----------
Cash flows from financing activities:
Proceeds (payments) on long-term debt..................... 16,476,756 (325,153)
Distributions to partners................................. (463,235) (1,051,176)
------------ -----------
Net cash provided by investing activities......... 16,013,521 (1,376,329)
------------ -----------
Net decrease in cash........................................ 743,363 1,455,697
Cash at beginning of year................................... (27,790) (529,763)
------------ -----------
Cash at end of period....................................... $ 715,573 $ 925,934
============ ===========
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 1,912,798 $ 796,203
============ ===========
Payment of income taxes.............................. $ 3,584 $ --
============ ===========
The accompanying note is an integral part of these statements.
F-226
MARTIN & MACFARLANE, INC.
NOTE TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information with respect to the six months ended June 30,
1998 and 1997 is unaudited. In the opinion of management, the financial
statements contain all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the results for such periods. The
information is not necessarily indicative of the results of operations to be
expected for the fiscal year end.
F-227
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of Riverside
Broadcasting Co., Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
related combined statements of earnings and cash flows for each of the years in
the three-year period ended December 31, 1996. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Riverside
Broadcasting Inc. and WAXQ Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-228
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $99 in
1995, $208 in 1996 and $170 in
1997............................... $ 5,507 $ 9,713 $10,489
Prepaid expenses and other current
assets............................. 178 381 162
Deferred income taxes................. 45 829 829
------- ------- -------
Total current assets.......... 5,730 10,923 11,480
Property and equipment, net (note 4).... 1,075 4,177 2,668
Intangible assets, net (note 5)......... 47,422 66,626 74,038
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 1,167 $ 3,669 $2,894
Deferred income taxes................... 222 4,373 4,373
Equity (note 9)......................... 52,838 73,684 80,919
Commitments and contingencies (note
10)...................................
------- ------- -------
$54,227 $81,726 $88,186
======= ======= =======
See accompanying notes to combined financial statements.
F-229
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Gross revenues.......................... $28,254 $25,862 $36,121 $14,274 $25,135
Less agency commissions and national
rep fees........................... 4,700 4,342 5,892 2,107 3,652
------- ------- ------- ------- -------
Net revenues.................. 23,554 21,520 30,229 12,167 21,483
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization...... 9,212 9,069 12,447 5,192 8,893
Depreciation and amortization......... 1,662 1,676 4,528 838 1,290
Corporate general and
administrative..................... 945 980 943 510 442
------- ------- ------- ------- -------
Operating expenses................. 11,819 11,725 17,918 6,540 10,625
------- ------- ------- ------- -------
Operating income................... 11,735 9,795 12,311 5,627 10,858
Other (income) expense (note 3)......... -- -- (741) -- --
------- ------- ------- ------- -------
Earnings before income taxes....... 11,735 9,795 13,052 5,627 10,858
Income tax expense (note 6)............. 6,053 5,154 6,683 2,881 4,336
------- ------- ------- ------- -------
Net earnings.................. $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
======= ======= ======= ======= =======
See accompanying notes to combined financial statements.
F-230
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows provided by operating activities:
Net earnings................................... $ 5,682 $ 4,641 $ 6,369 $ 2,746 $ 6,522
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation................................ 153 168 286 84 266
Amortization of goodwill.................... 1,509 1,508 1,811 754 1,024
Changes in certain assets and liabilities:
Deferred income taxes..................... 32 110 (603) -- --
Accounts receivable, net.................. (676) 659 (4,172) (984) (776)
Prepaid expenses and other current
assets................................. 12 103 (203) 128 219
Accounts payable and accrued expenses..... (192) (483) 2,502 765 (775)
------- ------- ------- ------- -------
Net cash provided by operating
activities........................... 6,520 6,706 5,990 3,493 6,480
------- ------- ------- ------- -------
Cash flows used by investing activities --capital
expenditures................................... (150) (129) (695) (250) (417)
------- ------- ------- ------- -------
Net cash used by financing
activities -- distribution to parent........... (6,370) (6,577) (5,295) (3,243) (6,063)
------- ------- ------- ------- -------
Increase (decrease) in cash...................... -- -- -- -- --
Cash at beginning of period...................... -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period............................ $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Noncash financing activities -- contribution of
radio station net assets by parent (note 3).... $ -- $ -- $19,772 $ -- $ --
======= ======= ======= ======= =======
See accompanying notes to combined financial statements.
F-231
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
Riverside Broadcasting Co., Inc. and WAXQ Inc. (collectively, the "Company").
The Company owns and operates two commercial radio stations in the New York City
market -- WLTW-FM and WAXQ-FM and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc. Significant
intercompany accounts and transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HSR Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom radio properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of Riverside
Broadcasting Co., Inc. and WAXQ Inc. These financial statements are not
necessarily indicative of the results that would have occurred if the Company
had been a separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-232
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-233
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one customer accounted for
more than 10% of net revenues in 1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) ACQUISITIONS AND DISPOSITIONS
On August 1, 1996, Viacom exchanged the assets of KBSG-AM/FM and KNDD-FM in
Seattle for the assets of WAXQ-FM in New York. The transaction was accounted for
as a nonmonetary exchange and was based on the recorded amounts of the
nonmonetary assets relinquished. For the period from July 1, 1996 to July 31,
1996, Viacom operated WAXQ-FM under a time brokerage agreement.
Station start-up costs, including fees paid pursuant to the time brokerage
agreement, amounting to $2,431,000, were capitalized and amortized during 1996.
Acquisition-related costs are reflected in the accompanying financial statements
as other expense.
A summary of net assets relinquished by Viacom in connection with the
exchange is as follows:
Working capital............................................. $ 34
Property and equipment...................................... 2,693
Intangible assets........................................... 21,015
Deferred taxes.............................................. (3,970)
-------
$19,772
=======
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
Broadcast facilities.................................. 8-20 years $1,971 $4,783
Office equipment and other............................ 5-8 years 557 754
Construction in progress.............................. 10 389
------ ------
2,538 5,926
Accumulated depreciation.............................. 1,463 1,749
------ ------
$1,075 $4,177
====== ======
(5) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $13,177 and $14,988, respectively.
F-234
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
1994 1995 1996
---- ---- ----
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.6 5.4 4.3
State and local taxes, net of federal tax benefit........... 11.9 12.1 11.8
Other, net.................................................. 0.1 0.1 0.1
---- ---- ----
Effective tax rate........................................ 51.6% 52.6% 51.2%
==== ==== ====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense.
(7) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(8) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements
(see note 9).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources and information systems. The allocation of
these expenses, which is generally based on revenue dollars, is reflected in the
accompanying combined financial statements as corporate general and
administrative expense. Management believes that the method of allocation of
corporate overhead is reasonable.
F-235
RIVERSIDE BROADCASTING CO., INC. AND WAXQ INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars. The Company recognized
expense related to these costs in the amounts of $63, $41 and $97 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plans will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(9) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
1994 1995 1996
-------- -------- --------
Balance at beginning of period.......... $ 55,462 $ 54,774 $ 52,838
Net earnings............................ 5,682 4,641 6,369
Net intercompany activity............... (6,370) (6,577) 14,477
-------- -------- --------
Balance at end of period................ $ 54,774 $ 52,838 $ 73,684
======== ======== ========
(10) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $192, $155
and $442 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
Year ending December 31:
1997.................................... $ 709
1998.................................... 722
1999.................................... 759
2000.................................... 795
2001.................................... 818
Thereafter.............................. 2,411
------
$6,214
======
F-236
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Evergreen Media Corporation:
We have audited the accompanying combined balance sheets of WMZQ Inc. and
Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the related
combined statements of earnings and cash flows for each of the years in the
three-year period ended December 31, 1996. These combined financial statements
are the responsibility of the Companies' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of WMZQ Inc.
and Viacom Broadcasting East Inc. as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997, except for note 10,
which is as of April 14, 1997
F-237
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
DECEMBER 31
------------------ JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
Current assets:
Accounts receivable, less allowance
for doubtful accounts of $150 in
1995, $235 in 1996 and $136 in
1997............................... $ 4,893 $ 5,401 $ 5,407
Prepaid expenses and other current
assets............................. 467 629 55
Deferred income taxes (note 5)........ 60 94 94
------- ------- -------
Total current assets.......... 5,420 6,124 5,556
Property and equipment, net (note 3).... 2,407 2,316 2,408
Intangible assets, net (note 4)......... 50,204 48,695 50,399
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable
and accrued expenses.................. $ 2,411 $ 2,458 $ 1,814
Deferred income taxes (note 5).......... 1,899 2,121 2,123
Equity (note 8)......................... 53,721 52,556 54,426
Commitments and contingencies (note
9)....................................
------- ------- -------
$58,031 $57,135 $58,363
======= ======= =======
See accompanying notes to combined financial statements.
F-238
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Gross revenues................................... $21,389 $25,656 $26,584 $13,422 $13,837
Less agency commissions and national rep
fees........................................ 3,321 4,131 4,075 1,624 1,818
------- ------- ------- ------- -------
Net revenues........................... 18,068 21,525 22,509 11,798 12,019
------- ------- ------- ------- -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............... 10,398 11,445 11,362 6,394 6,043
Depreciation and amortization.................. 1,798 1,814 1,884 906 989
Corporate general and administrative........... 694 940 674 436 240
------- ------- ------- ------- -------
Operating expenses.......................... 12,890 14,199 13,920 7,736 7,272
------- ------- ------- ------- -------
Earnings before income taxes................ 5,178 7,326 8,589 4,062 4,747
Income tax expense (note 5)...................... 2,607 3,437 3,929 1,858 1,556
------- ------- ------- ------- -------
Net earnings........................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
======= ======= ======= ======= =======
See accompanying notes to combined financial statements.
F-239
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,571 $ 3,889 $ 4,660 $ 2,204 $ 3,191
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 289 305 375 150 237
Amortization of goodwill........... 1,509 1,509 1,509 756 752
Deferred income tax expense........ 323 302 188 -- --
Changes in certain assets and
liabilities, net of effects of
acquisitions:
Accounts receivable, net......... 179 (1,485) (508) (445) (6)
Prepaid expenses and other
current assets................ 14 (121) (162) (730) 574
Accounts payable and accrued
expenses...................... (559) 20 47 2,446 (644)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 4,326 4,419 6,109 4,381 4,104
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (194) (491) (284) (142) (232)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distribution to
Parent................................ (4,132) (3,928) (5,825) (4,239) (3,872)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
See accompanying notes to combined financial statements.
F-240
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of WMZQ
Inc. and Viacom Broadcasting East Inc. (collectively, the "Company"). The
Company owns and operates four commercial radio stations in the Washington, DC
market, WMZQ-FM, WJZW-FM, WBZS-AM and WZHF-AM, and is wholly owned by Viacom
International Inc. ("Viacom" or "Parent"), a wholly owned subsidiary of Viacom,
Inc. Significant intercompany accounts and transactions have been eliminated in
combination.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively the "Viacom Radio
Properties") to Evergreen Media Corporation for $1.075 billion in cash
("Proposed Transaction"). The Proposed Transaction is expected to close after
the expiration or termination of the applicable waiting periods under the HSR
Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of WMZQ Inc. and Viacom
Broadcasting East, Inc. These financial statements are not necessarily
indicative of the results that would have occurred if the Company had been a
separate stand-alone entity during the periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-241
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-242
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one customer accounted for
more than 10% of net revenues in 1994, 1995, or 1996.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
ESTIMATED
USEFUL LIFE 1995 1996
--------------- ------ ------
Broadcast facilities................................... 8 - 20 years $2,268 $2,366
Land................................................... 440 440
Building............................................... 30 - 40 years 146 146
Office equipment and other............................. 5 - 8 years 1,866 1,808
Construction in progress............................... -- 5
------ ------
4,720 4,765
------ ------
Accumulated depreciation............................... 2,313 2,449
------ ------
$2,407 $2,316
====== ======
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $10,714 and $12,223, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
Income tax expense consists of:
1994 1995 1996
------ ------ ------
Current:
Federal................................................... $1,704 $2,434 $2,943
State and local........................................... 580 701 798
Deferred federal and state.................................. 323 302 188
------ ------ ------
$2,607 $3,437 $3,929
====== ====== ======
F-243
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
1994 1995 1996
---- ---- ----
Statutory U.S. tax rate................. 35.0% 35.0% 35.0%
Amortization of intangibles............. 7.4 5.2 4.5
State and local taxes, net of federal
tax benefit........................... 7.9 6.7 6.2
Other, net.............................. 0.0 0.0 0.0
---- ---- ----
Effective tax rate.................... 50.3% 46.9% 45.7%
==== ==== ====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying financial statements
as corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to these plans
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to these
costs in the amounts of $77, $74 and $242 for 1994, 1995 and 1996, respectively.
The assets and the related benefit obligation of the plans will not be
transferred to the Company upon consummation of the Proposed Transaction,
therefore, such assets and obligations are not included in the notes to the
Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded centrally upon demand and
cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-244
WMZQ INC. AND VIACOM BROADCASTING EAST INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
1994 1995 1996
------- ------- -------
Balance at beginning of period......................... $55,321 $53,760 $53,721
Net earnings........................................... 2,571 3,889 4,660
Net intercompany activity.............................. (4,132) (3,928) (5,825)
------- ------- -------
Balance at end of period............................... $53,760 $53,721 $52,556
======= ======= =======
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $332, $356 and
$373 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
Year ending December 31:
1997........................................................ $ 506
1998........................................................ 523
1999........................................................ 310
2000........................................................ 222
2001........................................................ 200
Thereafter.................................................. 814
------
$2,575
======
(10) SUBSEQUENT EVENT
On April 14, 1997, Evergreen Media Corporation and Chancellor Broadcasting
Company entered into an agreement with ABC Radio ("ABC"), a division of The Walt
Disney Company, whereby ABC will purchase from Evergreen and Chancellor two
radio stations, WDRQ-FM and WJZW-FM for a total of $105 million.
F-245
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Beasley FM Acquisition Corp.:
We have audited the accompanying balance sheet of WDAS-AM/FM (station owned
and operated by Beasley FM Acquisition Corp.) as of December 31, 1996, and the
related statements of earnings and station equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WDAS-AM/FM as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Petersburg, Florida
March 28, 1997
F-246
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
Current assets:
Cash...................................................... $ 2,111 $ 2,805
Accounts receivable, less allowance for doubtful accounts
of $166 and $138 in 1996 and 1997...................... 3,693 2,938
Trade sales receivable.................................... 359 29
Prepaid expense and other................................. 150 130
------- -------
Total current assets.............................. 6,313 5,902
Property and equipment, net (note 2)........................ 3,297 3,523
Notes receivable from related parties (note 5).............. 2,766 3,625
Intangibles, less accumulated amortization.................. 17,738 17,122
------- -------
$30,114 $30,172
======= =======
LIABILITIES AND STATION EQUITY
Current liabilities:
Current installments of long-term debt (note 3)........... $ 49 $ 49
Notes payable to related parties (note 5)................. 352 494
Accounts payable.......................................... 269 191
Accrued expenses.......................................... 515 313
Trade sales payable....................................... 39 12
------- -------
Total current liabilities......................... 1,224 1,059
Long-term debt, less current installments (note 3).......... 627 627
------- -------
Total liabilities................................. 1,851 1,686
Station equity.............................................. 28,263 28,486
Commitments and related party transactions (notes 4 and
5)........................................................
------- -------
$30,114 $30,172
======= =======
See accompanying notes to financial statements.
F-247
WDAS-AM/FM
(STATION OWNED AND OPERATED BY
BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF EARNINGS AND STATION EQUITY
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ------------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
Net revenues................................................ $14,667 $ 2,623 $ 3,000
------- ------- -------
Costs and expenses:
Program and production.................................... 2,028 445 620
Technical................................................. 212 59 50
Sales and advertising..................................... 3,514 660 802
General and administrative................................ 2,005 497 459
------- ------- -------
7,759 1,661 1,931
------- ------- -------
Operating income, excluding items shown separately
below........................................... 6,908 962 1,069
Management fees (note 5).................................... (620) (156) (128)
Depreciation and amortization............................... (2,763) (651) (657)
Interest income (expense), net.............................. (40) (13) 7
Other....................................................... -- -- (78)
------- ------- -------
Net income........................................ 3,485 142 213
Station equity, beginning of period......................... 25,367 25,367 28,273
Forgiveness of related party note receivable (note 5)....... (589) -- --
------- ------- -------
Station equity, end of period............................... $28,263 $25,509 $28,486
======= ======= =======
See accompanying notes to financial statements.
F-248
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
STATEMENTS OF CASH FLOWS
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -------------------------------
1996 1996 1997
------------ --------------- -------------
(UNAUDITED)
(IN THOUSANDS)
Cash flows from operating activities:
Net income........................................... $ 3,485 $ 142 $ 213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 2,763 651 657
Allowance for doubtful accounts................... 8 (56) (28)
Decrease (increase) in receivables................ (398) 792 1,113
(Increase) decrease) in prepaid expense and other
assets.......................................... (96) (104) 20
Decrease in payables and accrued expenses......... (507) (331) (297)
------- ----- ------
Net cash provided by operating activities.... 5,255 1,094 1,678
------- ----- ------
Cash flows from investing activities -- capital
expenditures for property and equipment.............. (775) (572) (267)
------- ----- ------
Cash flows from financing activities:
Proceeds from issuance of indebtedness............... 676 - -
Principal payments on indebtedness................... (820) - -
Payment of loan fees................................. (6) - -
Net change in borrowings to/from affiliates.......... (2,647) (305) (717)
------- ----- ------
Net cash used in financing activities........ (2,797) (305) (717)
------- ----- ------
Net increase in cash................................... 1,683 217 694
Cash at beginning of period............................ 428 428 2,111
------- ----- ------
Cash at end of period.................................. $ 2,111 $ 645 $2,805
======= ===== ======
Noncash transactions:
Forgiveness of related note receivable
Release of WDAS-AM/FM's obligations under a note
payable which related to obtaining an easement.
WDAS-AM/FM is now directly responsible for the costs
necessary to obtain this easement and has included
these costs in accrued expenses in the accompanying
balance sheet........................................ $ 350
=======
See accompanying notes to financial statements.
F-249
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(IN THOUSANDS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
WDAS-AM/FM (the Station) is a radio station operating in Philadelphia,
Pennsylvania. The assets, liabilities and operations of WDAS-AM/FM are part of
Beasley FM Acquisition Corp. (BFMA). These financial statements reflect only the
assets, liabilities and operations relating to radio station WDAS-AM/FM and are
not representative of the financial statements of BFMA.
(b) Revenue Recognition
Revenue is recognized as advertising air time is broadcast and is net of
advertising agency commissions.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated lives of the assets, which range
from 5 to 31 years.
(d) Intangibles
Intangibles consist primarily of FCC licenses, which are amortized
straight-line over ten years. Other intangibles are amortized straight-line over
5 to 10 years.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
BFMA adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did not have
a material impact on the Station's financial position, results of operations, or
liquidity.
(f) Barter Transactions
Trade sales are recorded at the fair value of the products or services
received and totaled approximately $676 for the year ended December 31, 1996.
Products and services received and expensed totaled approximately $449 for the
year ended December 31, 1996.
(g) Income Taxes
BFMA has elected to be treated as an "S" Corporation under provisions of
the Internal Revenue Code. Under this corporate status, the stockholders of BFMA
are individually responsible for reporting their share of
F-250
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income or loss. Accordingly, no provision for federal or state income
taxes has been reflected in the accompanying financial statements.
(h) Defined Contribution Plan
BFMA has a defined contribution plan which conforms with Section 401(k) of
the Internal Revenue Code. Under this plan, employees may contribute a minimum
of 1% of their compensation (no maximum) to the Plan. The Internal Revenue Code,
however, limited contributions to $9,500 in 1996. There are no employer matching
contributions.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates. To the
extent management's estimates prove to be incorrect, financial results for
future periods may be adversely affected.
(j) Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements contain all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position, results of operations, and
cash flows of the Station for the three-month periods ended March 31, 1997 and
1996 and as of June 30, 1997.
(2) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 1996:
Land, buildings, and improvements........................... $2,204
Broadcast equipment......................................... 1,200
Office equipment and other.................................. 477
Transportation equipment.................................... 79
------
3,960
Less accumulated depreciation..................... (663)
------
$3,297
======
(3) LONG-TERM DEBT
BFMA and six affiliates (the Group) refinanced their $100,000 revolving
credit loan on June 24, 1996. Under terms of the new agreement, the Group was
provided a revolving credit loan with an initial maximum commitment of $115,000.
The credit agreement was subsequently amended and the maximum commitment was
increased to $120,000. The Group's borrowings under the revolving credit loan
totaled $115,784 at December 31, 1996, of which $676 was allocated to
WDAS-AM/FM. The loan bears interest at either the base rate or LIBOR plus a
margin which is determined by the Group's debt to cash flow ratio. The base rate
is equal to the higher of the prime rate or the overnight federal funds
effective rate plus 0.5%. At December 31,
F-251
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1996, the revolving credit loan carried interest at an average rate of 8.61%.
Interest is generally payable monthly. The Group has entered into interest rate
hedge agreements as discussed in note 6.
The amount available under the Group's revolving credit loan will be
reduced quarterly beginning September 30, 1997 through its maturity on December
31, 2003. The loan agreement includes restrictive covenants and requires the
Group to maintain certain financial ratios. The loans are secured by the common
stock and substantially all assets of the Group.
Annual maturities on the Group's revolving credit loan for the next five
years are as follows:
S-AM/FM paid interest of approximately $79 in 1996.
(4) COMMITMENTS
On September 19, 1996, BFMA entered into an asset purchase agreement (APA)
with Evergreen Media Corporation of Los Angeles (Evergreen) for the sale of
WDAS-AM/FM. Under the terms of the APA, BFMA will convey substantially all of
the assets used in the operation of the station to Evergreen in exchange for a
purchase price of $103,000, subject to adjustment, to be paid in cash. BFMA
expects to close on this sale before July 1, 1997.
WDAS-AM/FM leases facilities and a tower under 10-year operating leases
which expire in July 2004 and January 2007, respectively. WDAS-AM/FM also leases
certain other office equipment on a month-to-month basis. Lease expense was
approximately $215 in 1996. Future minimum lease payments by year are summarized
as follows:
In the normal course of business, the Station is party to various legal
matters. The ultimate disposition of these matters will not, in management's
judgment, have a material adverse effect on the Station's financial position.
F-252
WDAS-AM/FM
(STATION OWNED AND OPERATED BY BEASLEY FM ACQUISITION CORP.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) RELATED PARTY TRANSACTIONS
The Company has a management agreement with Beasley Management Company, an
affiliate of the Company's principal stockholder. Management fee expense under
the agreement was $620 in 1996.
The notes receivable from/payable to related parties are non-interest
bearing and are due on demand. A note receivable due from a related party of
$589 was forgiven in 1996.
(6) FINANCIAL INSTRUMENTS
WDAS-AM/FM's significant financial instruments and the methods used to
estimate their fair value are as follows:
Revolving credit loan -- The fair value approximates carrying value
due to the loan being refinanced on June 24, 1996 and the interest rate
being based on current market rates.
Notes receivable from/payable to related parties -- It is not
practicable to estimate the fair value of these notes payable due to their
related party nature.
Interest rate swap, cap and collar agreements -- The Group entered
into an interest rate swap agreement with a notional amount of $15,000, an
interest rate cap agreement with a notional amount of $3,100, and an
interest rate collar agreement with a notional amount of $15,000 to act as
a hedge by reducing the potential impact of increases in interest rates on
the revolving credit loan. These agreements expire on various dates in
1999. The Group is exposed to credit loss in the event of nonperformance by
the other parties to the agreements. The Group, however, does not
anticipate nonperformance by the counterparties. The fair value of the
interest rate swap agreement is estimated using the difference between the
present value of discounted cash flows using the base rate stated in the
swap agreement (5.37%) and the present value of discounted cash flows using
the LIBOR rate at December 31, 1996. The fair values of the interest rate
cap agreement, which establishes a maximum base rate of 7.50%, and the
interest rate collar agreement, which establishes a minimum base rate of
4.93% and a maximum base rate of 6%, are estimated based on the amounts the
Group would expect to receive or pay to terminate the agreement. The
estimated fair value of each of these agreements is negligible.
F-253
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying combined balance sheets of KYSR Inc. and
KIBB Inc. as of December 31, 1995 and 1996, and the related combined statements
of operations and cash flows for each of the years in the three-year period
ended December 31, 1996. These combined financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of KYSR Inc.
and KIBB Inc. as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-254
KYSR INC. AND KIBB INC.
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $218 in 1995 and $246 in 1996 and $321 in 1997...... $ 6,253 $ 7,283 $ 7,403
Prepaid expenses and other................................ 412 609 18
Deferred income taxes (note 5)............................ 89 101 101
-------- -------- --------
Total current assets.............................. 6,754 7,993 7,522
Property and equipment, net (note 3)........................ 4,172 4,082 4,195
Intangible assets, net (note 4)............................. 116,946 113,644 111,984
Other assets, net........................................... 22 22 22
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 3,883 $ 3,624 $ 2,082
Deferred income taxes (note 5).............................. 9,683 11,027 11,027
Equity (note 8)............................................. 114,328 111,090 110,614
Commitments and contingencies (note 9)......................
-------- -------- --------
$127,894 $125,741 $123,723
======== ======== ========
See accompanying notes to combined financial statements.
F-255
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
See accompanying notes to combined financial statements.
F-256
KYSR INC. AND KIBB INC.
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------- -------
(UNAUDITED)
Cash flows provided by operating activities:
Net earnings (loss).......................... $ (143) $ 960 $2,390 $ 683 $ 1,660
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Depreciation.............................. 338 359 325 175 193
Amortization of intangibles............... 3,302 3,302 3,302 1,651 1,651
Deferred tax expense...................... 1,597 1,412 1,332 -- --
Changes in certain assets and liabilities:
Accounts receivable, net................ (1,452) (120) (1,030) (330) (120)
Prepaid expenses and other current
assets............................... 372 (149) (197) (1,468) 591
Accounts payable and accrued expenses... (345) 265 (259) 2,236 (1,542)
------ ------ ------ ------- -------
Net cash provided by operating
activities......................... 3,669 6,029 5,863 2,947 2,433
------ ------ ------ ------- -------
Cash used by investing activities -- capital
expenditures................................. (280) (223) (235) (80) (296)
------ ------ ------ ------- -------
Cash flows used by financing
activities -- distributions to Parent........ (3,389) (5,806) (5,628) (2,867) (2,137)
------ ------ ------ ------- -------
Increase (decrease) in cash.................... -- -- -- -- --
Cash at beginning of period.................... -- -- -- -- --
------ ------ ------ ------- -------
Cash at end of period.......................... $ -- $ -- $ -- $ -- $ --
====== ====== ====== ======= =======
See accompanying notes to combined financial statements.
F-257
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of KYSR
Inc. and KIBB Inc. (collectively, the "Company"). The Company owns and operates
two commercial radio stations in the Los Angeles market, KYSR-FM and KIBB-FM,
and is wholly owned by Viacom International Inc. ("Viacom" or "Parent"), a
wholly owned subsidiary of Viacom, Inc. Significant intercompany balances and
transactions have been eliminated in combination.
On February 16, 1997, Viacom entered into a stock purchase agreement to
sell all the issued and outstanding shares of capital stock of WAXQ Inc. and
Riverside Broadcasting Co., Inc. in the New York City market, KYSR Inc. and KIBB
Inc. in the Los Angeles market, Viacom Broadcasting East Inc. and WMZQ Inc. in
the Washington, DC market, WLIT Inc. in the Chicago market and WDRQ Inc. in the
Detroit market (collectively, the "Viacom Radio Properties") to Evergreen Media
Corporation of Los Angeles ("Evergreen"), for $1.075 billion in cash ("Proposed
Transaction"). The Proposed Transaction is expected to close after the
expiration or termination of the applicable waiting periods under the HRS Act
and approval by the Federal Communications Commission ("FCC"). Contemporaneous
with this transaction, Evergreen entered into a joint purchase agreement with
Chancellor Broadcasting Company ("Chancellor") under which Chancellor agreed to
acquire the Chicago, Detroit and Los Angeles Viacom Radio Properties referred to
above for $480 million from Evergreen or from Viacom directly.
The accompanying combined financial statements reflect the carve-out
historical results of operations and financial position of KYSR Inc. and KIBB
Inc. These financial statements are not necessarily indicative of the results
that would have occurred if the Company had been a separate stand-alone entity
during the period presented.
The combined financial statements do not include Viacom's corporate assets
or liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying combined statements of
earnings in corporate general and administrative expense and station operating
expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
F-258
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or services to be
received. Barter revenue is recorded and the liability relieved when commercials
are broadcast and barter expense is recorded and the asset relieved when goods
or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit
F-259
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and believes that adequate allowances for any
uncollectible trade receivables are maintained. No one advertiser accounted for
more than 10% of net revenues in 1994, 1995, or 1996. Certain advertisers
purchase the advertising of the stations through a third party buying service.
Approximately 22%, 20% and 19% of total revenue was derived through the use of
this service in 1994, 1995 and 1996, respectively.
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
Land.................................................... $2,875 $2,875
Building................................................ 40 years 474 474
Broadcast facilities.................................... 8-20 years 1,501 1,572
Office equipment and other.............................. 5-8 years 725 902
Construction in progress................................ 36 24
------ ------
5,611 5,847
Accumulated depreciation................................ 1,439 1,765
------ ------
$4,172 $4,082
====== ======
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $15,148 and $18,450, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the combined U.S.
federal and certain combined and separate state income tax returns of Viacom
International Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
F-260
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the U.S. Federal statutory tax rate to the Company's
effective tax rate on earnings (loss) before income taxes is as follows:
1994 1995 1996
---- ---- ----
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit........... 6.2 6.2 6.1
Other, net.................................................. (8.3) 0.9 0.4
---- ---- ----
Effective tax rate.......................................... 32.9% 42.1% 41.5%
==== ==== ====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying combined financial
statements (see note 8).
On January 25, 1990, KYSR, Inc., formerly KXEZ, Inc., issued an
intercompany demand note to Viacom in the amount of $66,400. The note bears
interest at 9.6% per year payable on the last day of each calendar year. The
principal and final interest payment are payable on January 25, 2000. However,
immediately prior to closing of the Proposed Transaction, all debts between the
Company and Viacom will be canceled. As such, the promissory note issued to
Viacom is reflected as an increase to equity and included in intercompany
activity in the amount of $66,400 at December 31, 1995 and 1996 (see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, taxes and
other corporate services. The allocation of these expenses, which is generally
based on revenue dollars, is reflected in the accompanying combined financial
statements as corporate general and administrative expense. Management believes
that the method of allocation of overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars and are included in
station operating expenses. The Company recognized expense related to this plan
in the amounts of $70, $56 and $191 for 1994, 1995 and 1996, respectively. The
assets and the related benefit
F-261
KYSR INC. AND KIBB INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
obligation of the plan will not be transferred to the Company upon consummation
of the Proposed Transaction, therefore, such assets and obligations are not
included in the notes to the Company's combined financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services rendered from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
1994 1995 1996
-------- -------- --------
Balance at beginning of period....................... $122,706 $119,174 $114,328
Net earnings (loss).................................. (143) 960 2,390
Net intercompany activity............................ (3,389) (5,806) (5,628)
-------- -------- --------
Balance at end of period............................. $119,174 $114,328 $111,090
======== ======== ========
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from one to
ten years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases (excluding those with lease
terms of one month or less that were not renewed) was approximately $377, $365
and $405 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
YEAR ENDING
DECEMBER 31:
------------
1997.................................................................. $ 365
1998.................................................................. 366
1999.................................................................. 312
2000.................................................................. 19
Thereafter............................................................ --
------
$1,062
======
F-262
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chancellor Broadcasting Company:
We have audited the accompanying balance sheets of WLIT Inc. as of December
31, 1995 and 1996, and the related statements of earnings and cash flows for
each of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WLIT Inc. as of December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 14, 1997
F-263
WLIT INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
Current assets:
Accounts receivable, less allowance for doubtful accounts
of $79 in 1995 and $87 in 1996 and $110 in 1997........ $ 3,110 $ 3,627 $ 3,836
Prepaid expenses and other current assets................. 592 490 200
Deferred income taxes (note 5)............................ 37 44 44
------- ------- -------
Total current assets.............................. 3,739 4,161 4,080
Property and equipment, net (note 3)........................ 461 457 545
Intangible assets, net (note 4)............................. 16,958 16,415 16,143
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
LIABILITIES AND EQUITY
Current liabilities -- accounts payable and accrued
expenses.................................................. $ 1,442 $ 1,195 $ 1,376
Deferred income taxes (note 5).............................. 58 53 53
Equity (note 8)............................................. 19,658 19,785 19,339
Commitment and contingencies (note 9).......................
------- ------- -------
$21,158 $21,033 $20,768
======= ======= =======
See accompanying notes to financial statements.
F-264
WLIT INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
------- ------- ------- ------ -------
(UNAUDITED)
Gross revenues................................ $14,367 $16,720 $18,294 $8,080 $10,035
Less agency commissions and national rep
fees..................................... 2,523 2,848 3,071 1,144 1,410
------- ------- ------- ------ -------
Net revenues........................ 11,844 13,872 15,223 6,936 8,625
------- ------- ------- ------ -------
Operating expenses:
Station operating expenses excluding
depreciation and amortization............ 6,555 6,977 7,508 3,839 4,221
Depreciation and amortization............... 655 653 659 327 340
Corporate general and administrative........ 478 630 479 274 172
------- ------- ------- ------ -------
Operating expenses....................... 7,688 8,260 8,646 4,440 4,733
------- ------- ------- ------ -------
Earnings before income taxes............. 4,156 5,612 6,577 2,496 3,892
Income tax expense (note 5)................... 1,804 2,359 2,728 1,048 1,280
------- ------- ------- ------ -------
Net earnings........................ $ 2,352 $ 3,253 $ 3,849 $1,448 $ 2,612
======= ======= ======= ====== =======
See accompanying notes to financial statements.
F-265
WLIT INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
Cash flows provided by operating
activities:
Net earnings.......................... $ 2,352 $ 3,253 $ 3,849 $ 1,448 $ 2,612
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation....................... 114 114 116 55 68
Amortization of intangibles........ 541 539 543 272 272
Deferred income taxes.............. (13) 5 (8) -- --
Changes in certain assets and
liabilities:
Accounts receivable, net......... (73) (460) (517) (476) (209)
Prepaid expenses and other
current assets................ (101) (181) 98 (577) 295
Accounts payable and accrued
expenses...................... (384) 173 (247) 1,461 (1,542)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................. 2,436 3,443 3,834 2,183 1,496
------- ------- ------- ------- -------
Cash flows used by investing
activities -- capital expenditures.... (180) (110) (112) (45) (156)
------- ------- ------- ------- -------
Cash flows used by financing
activities -- distributions to
Parent................................ (2,256) (3,333) (3,722) (2,138) (1,340)
------- ------- ------- ------- -------
Increase (decrease) in cash............. -- -- -- -- --
Cash at beginning of period............. -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period................... $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
See accompanying notes to financial statements.
F-266
WLIT INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of WLIT Inc.
(the "Company"). The Company owns and operates a commercial radio station in the
Chicago market, WLIT-FM, and is wholly owned by Viacom International Inc.
("Viacom" or "Parent"), a wholly owned subsidiary of Viacom, Inc.
On February 16, 1997, Viacom International Inc. entered into a stock
purchase agreement to sell all the issued and outstanding shares of capital
stock of WAXQ Inc. and Riverside Broadcasting Co., Inc. in the New York City
market, KYSR Inc. and KIBB Inc. in the Los Angeles market, Viacom Broadcasting
East Inc. and WMZQ Inc. in the Washington, DC market, WLIT Inc. in the Chicago
market and WDRQ Inc. in the Detroit market (collectively, the "Viacom Radio
Properties") to Evergreen Media Corporation ("Evergreen") for $1.075 billion in
cash ("Proposed Transaction"). The Proposed Transaction is expected to close
after the expiration or termination of the applicable waiting periods under the
HSR Act and approval by the Federal Communications Commission ("FCC").
Contemporaneous with this transaction, Evergreen entered into a joint purchase
agreement with Chancellor Broadcasting Company ("Chancellor"), under which
Chancellor agreed to acquire the Chicago, Detroit and Los Angeles Viacom Radio
Properties referred to above for $480 million from Evergreen or from Viacom
directly.
The accompanying financial statements reflect the carve-out historical
results of operations and financial position of WLIT Inc. These financial
statements are not necessarily indicative of the results that would have
occurred if the Company had been a separate stand-alone entity during the
periods presented.
The financial statements do not include Viacom's corporate assets or
liabilities not specifically identifiable to the Company. Corporate overhead
allocations have been included in the accompanying statements of earnings in
corporate general and administrative expense and station operating expenses.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Repair and maintenance costs are charged to expense when
incurred.
(b) Intangible Assets
Intangible assets consist primarily of broadcast licenses. The Company
amortizes such intangible assets using the straight-line method over 40 years.
The Company continually evaluates the propriety of the carrying amount of
intangible assets as well as the amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value and/or
revised estimates of useful lives. This evaluation consists of the projection of
undiscounted operating income before depreciation, amortization, nonrecurring
charges and interest over the remaining amortization periods of the related
intangible assets. At this time, the Company believes that no significant
impairment of intangible assets has occurred and that no reduction of the
estimated useful lives is warranted.
(c) Barter Transactions
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and
liability are recorded at the fair market value of the goods or
F-267
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
services to be received. Barter revenue is recorded and the liability relieved
when commercials are broadcast and barter expense is recorded and the asset
relieved when goods or services are received or used.
(d) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. Income
tax expense is the total of tax payable for the period and the change during the
period in deferred tax assets and liabilities.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. The adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
(g) Fair Value
The carrying amount of accounts receivable and accounts payable
approximates fair value because of the short maturity of these instruments.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, credit risk with respect to trade receivables
is limited due to the large number of diversified customers in the Company's
customer base. The Company performs ongoing credit evaluations of its customers
and believes that adequate allowances for any uncollectible trade receivables
are maintained. No one customer accounted for more than 10% of net revenues in
1994, 1995, or 1996.
F-268
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(i) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined financial
statements as of and for the six months ended June 30, 1996 and 1997, reflect
all adjustments, consisting of only normal and recurring items, which are
necessary for a fair presentation of the results for the interim periods
presented. The results for the interim periods ended June 30, 1996 and 1997 are
not necessarily indicative of results to be expected for any other interim
period or for the full year.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995 and
1996:
ESTIMATED
USEFUL LIFE 1995 1996
----------- ------ ------
Broadcast facilities.................................... 8-20 years $1,116 $1,141
Office equipment and other.............................. 5-8 years 791 868
Construction in progress................................ 13 13
------ ------
1,920 2,022
Accumulated depreciation................................ 1,459 1,565
------ ------
$ 461 $ 457
====== ======
(4) INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1996 consist of broadcast
licenses which are being amortized over forty years and are presented net of
accumulated amortization of $5,585 and $6,128, respectively.
(5) INCOME TAXES
The Company's results of operations are included in the U.S. federal and
certain combined and separate state income tax returns of Viacom International
Inc.
The tax provisions and deferred tax liabilities presented have been
determined as if the Company were a stand-alone business filing separate tax
returns. Current tax liabilities are recorded through the equity account with
Viacom.
A reconciliation of the U.S. Federal Statutory tax rate to the Company's
effective tax rate on earnings before income taxes is as follows:
1994 1995 1996
---- ---- ----
Statutory U.S. tax rate..................................... 35.0% 35.0% 35.0%
Amortization of intangibles................................. 4.7 3.4 2.9
State and local taxes, net of federal tax benefit........... 3.6 3.4 3.4
Other, net.................................................. 0.2 0.2 0.2
---- ---- ----
Effective tax rate................................ 43.5% 42.0% 41.5%
==== ==== ====
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes. These temporary differences are primarily the result
of fixed asset basis differences and bad debt expense. Deferred tax assets and
liabilities relating to state income taxes are not material.
(6) DEBT AND INTEREST COST
Viacom has not allocated any portion of its debt or related interest cost
to the Company, and no portion of Viacom's debt is specifically related to the
operations of the Company. Accordingly, the Company's financial statements
include no charges for interest.
(7) RELATED PARTY TRANSACTIONS
Intercompany balances between the Company and Viacom resulting from normal
trade activity are reflected in Equity in the accompanying financial statements
(see note 8).
Viacom provides services for the Company in management, accounting and
financial reporting, human resources, information systems, legal, tax and other
corporate services. The allocation of these expenses, which is generally based
on revenue dollars, is reflected in the accompanying financial statements as
corporate general and administrative expense. Management believes that the
method of allocation of corporate overhead is reasonable.
Viacom has a noncontributory pension plan covering substantially all of its
employees, including the employees of the Company. Costs related to this plan
are allocated to the Company based on payroll dollars. The Company recognized
expense related to this plan in the amounts of $67, $46 and $126 for 1994, 1995
and 1996, respectively. The assets and the related benefit obligation of the
plan will not be transferred to the Company upon consummation of the Proposed
Transaction, therefore, such assets and obligations are not included in the
notes to the Company's financial statements.
Viacom utilizes a centralized cash management system. As a result, the
Company carries minimal cash. Disbursements are funded by the Parent upon demand
and cash receipts are transferred to the Parent daily.
The Company, from time to time, enters into transactions with companies
owned by or affiliated with Viacom. Generally, services received from such
related parties are charged to the Company at amounts which would be incurred in
transactions between unrelated entities.
F-270
WLIT INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) EQUITY
Equity represents Viacom's ownership interest in the recorded net assets of
the Company. All cash transactions and intercompany transactions flow through
the equity account. A summary of the activity is as follows:
1994 1995 1996
------- ------- -------
Balance at beginning of period.......................... $19,642 $19,738 $19,658
Net earnings............................................ 2,352 3,253 3,849
Net intercompany activity............................... (2,256) (3,333) (3,722)
------- ------- -------
Balance at end of period................................ $19,738 $19,658 $19,785
======= ======= =======
(9) COMMITMENTS AND CONTINGENCIES
The Company has noncancelable operating leases, primarily for office space.
These leases generally contain renewal options for periods ranging from 1 to 10
years and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases (excluding those with lease terms
of one month or less that were not renewed) was approximately $319, $337 and
$327 during 1994, 1995 and 1996, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 1996
are as follows:
To the Partners of
Colfax Communications, Inc. Radio Group:
We have audited the accompanying combined balance sheets of the Colfax
Communications, Inc. Radio Group (the "Company") as of December 31, 1996, 1995,
and 1994, and the related combined statements of income (loss), changes in
partners' equity and cash flows for each of the three years in the period ended
December 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In January 1997, substantially all of the assets and liabilities of the
Company were sold.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Colfax
Communications, Inc. Radio Group as of December 31, 1996, 1995, and 1994, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 31, 1997
F-272
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ----------- -----------
Current assets:
Cash............................................... $ 1,718,589 $ 682,672 $ 216,414
Accounts receivable, net of allowance for doubtful
accounts of $710,813, $441,889, and $238,801,
respectively.................................... 15,514,187 7,626,579 8,978,881
Prepaid expenses and other current assets.......... 520,358 286,774 343,441
------------ ----------- -----------
Total current assets....................... 17,753,134 8,596,025 9,538,736
Property and equipment at cost, net of
depreciation....................................... 14,508,097 8,675,724 9,608,603
Intangibles and other noncurrent assets at cost, net
of amortization.................................... 147,579,599 32,383,587 37,653,803
------------ ----------- -----------
Total assets............................... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
Liabilities:
Accounts payable and accrued expenses.............. $ 5,116,890 $ 3,224,139 $ 3,883,242
Current maturities of long-term debt............... -- -- 900,000
------------ ----------- -----------
Total current liabilities.................. 5,116,890 3,224,139 4,783,242
Long-term debt..................................... 55,650,000 39,225,000 7,100,000
------------ ----------- -----------
Total liabilities.......................... 60,766,890 42,449,139 11,883,242
------------ ----------- -----------
Commitments (Note 8):
Partners' equity:
Radio Acquisition Associates....................... (1,141,558) (2,783,226) (3,121,671)
Equity Group Holdings.............................. 119,013,080 9,888,902 47,558,478
Colfax Communications, Inc......................... 1,202,418 100,521 481,093
Class B Limited Partners........................... -- -- --
------------ ----------- -----------
Total partners' equity..................... 119,073,940 7,206,197 44,917,900
------------ ----------- -----------
Total liabilities and partners' equity..... $179,840,830 $49,655,336 $56,801,142
============ =========== ===========
The accompanying notes are an integral part of these balance sheets.
F-273
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
----------- ----------- -----------
Advertising revenues:
Local sponsors...................................... $37,496,454 $23,425,588 $24,147,363
National sponsors................................... 12,885,713 9,151,724 8,221,228
Other............................................... 2,518,200 1,910,483 2,090,737
----------- ----------- -----------
Gross advertising revenues.................. 52,900,367 34,487,795 34,459,328
Less -- Commissions................................. (6,785,322) (4,345,062) (4,283,386)
----------- ----------- -----------
Net advertising revenues.................... 46,115,045 30,142,733 30,175,942
----------- ----------- -----------
Operating expenses:
Programming......................................... 7,675,793 5,461,691 9,604,067
Sales and advertising............................... 14,507,662 11,360,597 10,885,717
General and administrative.......................... 5,793,377 4,332,286 3,651,832
Engineering......................................... 1,260,447 1,014,375 1,084,282
Depreciation and amortization....................... 4,617,958 6,505,492 7,599,901
----------- ----------- -----------
Total operating expenses.................... 33,855,237 28,674,441 32,825,799
----------- ----------- -----------
Income (loss) from operations............... 12,259,808 1,468,292 (2,649,857)
Interest expense...................................... 4,368,669 655,795 531,387
Loss on sale of fixed assets.......................... -- 770,689 --
Other expense (income)................................ (184,289) -- 75,364
----------- ----------- -----------
Net income (loss)........................... $ 8,075,428 $ 41,808 $(3,256,608)
=========== =========== ===========
The accompanying notes are an integral part of these statements.
F-274
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
RADIO EQUITY CLASS B
ACQUISITION COLFAX GROUP LIMITED
ASSOCIATES COMM., INC. HOLDINGS PARTNERS TOTAL
----------- ----------- ------------ -------- ------------
Balance, December 31, 1993.......... $(2,464,398) $ 528,938 $ 52,305,936 $ -- $ 50,370,476
Capital contributions from
partners....................... 368,281 60,023 5,949,744 -- 6,378,048
Capital distributions to
partners....................... (1,678,638) (68,618) (6,826,760) -- (8,574,016)
Net income (loss)................. 653,084 (39,250) (3,870,442) -- (3,256,608)
----------- ---------- ------------ ----- ------------
Balance, December 31, 1994.......... (3,121,671) 481,093 47,558,478 -- 44,917,900
Capital contributions from
partners....................... -- 5,735 567,746 -- 573,481
Capital distributions to
partners....................... (1,031,464) (372,709) (36,922,819) -- (38,326,992)
Net income (loss)................. 1,369,909 (13,598) (1,314,503) -- 41,808
----------- ---------- ------------ ----- ------------
Balance, December 31, 1995.......... (2,783,226) 100,521 9,888,902 -- 7,206,197
Capital contributions from
partners....................... 5,104 1,130,725 111,941,654 -- 113,077,483
Capital distributions to
partners....................... (981,106) (82,845) (8,221,217) -- (9,285,168)
Net income (loss)................. 2,617,670 54,017 5,403,741 -- 8,075,428
----------- ---------- ------------ ----- ------------
Balance, December 31, 1996.......... $(1,141,558) $1,202,418 $119,013,080 $ -- $119,073,940
=========== ========== ============ ===== ============
The accompanying notes are an integral part of these statements.
F-275
COLFAX COMMUNICATIONS, INC. RADIO GROUP
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------------- ------------ -----------
Cash flows from operating activities:
Net income (loss)................................ $ 8,075,428 $ 41,808 $(3,256,608)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization................. 4,617,958 6,505,492 7,599,901
Loss on asset disposal........................ -- 770,689 57,398
Restructuring charge.......................... -- 737,729 --
Change in assets and liabilities:
(Increase) decrease in accounts
receivable............................... (7,888,416) 1,352,302 (1,664,323)
(Increase) decrease in prepaid expenses and
other current assets..................... (233,584) 56,667 170,619
Increase (decrease) in accounts payable and
accrued expenses......................... 1,892,751 (1,396,832) 708,448
------------- ------------ -----------
Net cash provided by operating
activities............................. 6,464,137 8,067,855 3,615,435
------------- ------------ -----------
Cash flows from investing activities:
Cash paid for acquisition of intangibles and
other noncurrent assets....................... (126,017,951) (363,174) (12,944)
Payments for additions to property and
equipment..................................... (5,907,584) (823,737) (968,929)
Disposal of intangible assets.................... 6,280,000 -- --
Disposal of fixed assets......................... -- 113,825 --
------------- ------------ -----------
Net cash used in investing activities.... (125,645,535) (1,073,086) (981,873)
------------- ------------ -----------
Cash flows from financing activities:
Repayment of note payable........................ (5,800,000) (8,000,000) (800,000)
Loan proceeds.................................... 22,225,000 39,225,000 --
Capital contributions from partners.............. 113,077,483 573,481 6,378,048
Capital distributions to partners................ (9,285,168) (38,326,992) (8,190,101)
------------- ------------ -----------
Net cash provided by (used in) financing
activities............................. 120,217,315 (6,528,511) (2,612,053)
------------- ------------ -----------
Net increase (decrease) in cash.................... 1,035,917 466,258 21,509
Cash, beginning of period.......................... 682,672 216,414 194,905
------------- ------------ -----------
Cash, end of period................................ $ 1,718,589 $ 682,672 $ 216,414
============= ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest........... $ 4,391,300 $ 615,900 $ 514,213
============= ============ ===========
The accompanying notes are an integral part of these statements.
F-276
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1995, AND 1994
1. BASIS OF PRESENTATION:
The accompanying combined financial statements include the radio station
holdings of Colfax Communications, Inc. ("Colfax"), a Maryland Corporation.
Three of the stations serve the Washington, D.C., market: WGMS-FM (classical
format), WBIG-FM (oldies format), and WTEM(AM) (all-sports format). Two
stations, WBOB-FM (country format) and KQQL(FM) (oldies format), serve the
Minneapolis-St. Paul market. Five of the stations serve the Phoenix market:
KOOL-FM (oldies format), KOY(AM) (nostalgia format), KZON-FM (alternative
format), KISO(AM) (urban adult contemporary format), and KYOT-FM (new adult
contemporary format). Two stations serve the Milwaukee market: WMIL-FM (country
format) and WOKY(AM) (adult standard format). Three stations serve the Boise
market: KIDO(AM) (news/talk format), KLTB(FM) (oldies format), and KARO(FM)
(class rock format). All stations are owned by entities under the common control
of Colfax and its affiliates.
2. DESCRIPTION OF COLFAX COMMUNICATIONS, INC., RADIO GROUP:
Classical Acquisition Limited Partnership
Classical Acquisition Limited Partnership ("CALP") is a Maryland limited
partnership formed to acquire and operate radio stations WGMS(AM) (currently
WTEM(AM)) and WGMS-FM. Radio Acquisition Associates Limited Partnership, a
Maryland limited partnership, had a 98.04 percent general partner interest and
Equity Group Holdings, a District of Columbia general partnership, had a 1.96
percent limited partner interest in CALP prior to the admission of the Class B
Limited Partners as discussed below. Radio Acquisition Associates Limited
Partnership has Colfax as a 1 percent general partner and Equity Group Holdings
as a 99 percent limited partner.
Certain Class B Limited Partners were admitted to the partnership on
January 1, 1993 and on January 1, 1995. The Class B Limited Partners have a
13.25 percent interest in CALP and Equity Group Holdings' limited partnership
interest in CALP was reduced to 1.813 percent effective January 1, 1993. Radio
Acquisition Associates' Limited Partnership general partnership interest was
reduced to 90.687 percent and 84.937 percent effective January 1, 1993 and
January 1, 1995, respectively.
Radio 570 Limited Partnership
Radio 570 Limited Partnership ("Radio 570") is a Maryland limited
partnership formed on December 10, 1991, to operate radio station WTEM-AM
(formerly WGMS-AM). Radio 570 was formed by Colfax as the 1 percent general
partner and Equity Group Holdings as the 99 percent limited partner. WTEM began
broadcasting on May 24, 1992.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. As of December 31, 1996 and 1995, the
Class B Limited Partners had a 9.25 percent interest and Equity Group Holdings
had an 89.75 percent Class A Limited Partnership interest.
Radio 100 Limited Partnership
Radio 100 Limited Partnership ("Radio 100") was formed on August 11, 1992,
to acquire and operate radio stations. Radio 100 was formed by Colfax as the 1
percent general partner and Equity Group Holdings as the 99 percent limited
partner.
F-277
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, Radio 100 completed its acquisition of two radio stations in
Minnesota for $25,500,000. WBOB-FM (formerly WCTS-FM) and KQQL(FM) began on-air
operations under Radio 100 ownership on May 7, 1993, and February 18, 1993,
respectively.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. The Class B Limited Partners have a 10.25 percent interest
and the Equity Group Holdings Class A Limited Partnership interest was reduced
to 88.75 percent.
Radio 100 of Maryland Limited Partnership
Radio 100 of Maryland Limited Partnership ("Radio 100 of Maryland") was
formed on December 2, 1992 to acquire and operate radio stations. Radio 100 of
Maryland was formed by Colfax as the 1 percent general partner and Equity Group
Holdings as the 99 percent limited partner.
On June 3, 1993, Radio 100 of Maryland acquired WBIG-FM (formerly WJZE-FM)
in Washington, D.C. for $19,500,000.
Effective January 1, 1993, certain Class B Limited Partners were admitted
to the partnership. On September 15, 1995, a Class B Limited Partner was
redeemed of his partnership interest. On October 1, 1995, a Class B Limited
Partner was admitted to the partnership. As of December 31, 1996 and 1995, the
Class B Limited Partners had an 11.25 percent interest and Equity Group Holdings
had an 87.75 percent Class A Limited Partnership interest.
Radio 94 of Phoenix Limited Partnership
Radio 94 of Phoenix Limited Partnership ("Radio 94") was formed on January
3, 1996, to acquire and operate radio stations. Radio 94 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On April 1, 1996, Radio 94 acquired KOOL(AM) and KOOL-FM in
Phoenix, Arizona for $35,000,000. Effective April 5, 1996, certain Class B
Limited Partners were admitted to the partnership. The Class B Limited Partners
have an 8.25 percent interest and the Equity Group Holdings Class A Limited
Partnership interest was reduced to 90.75 percent. On October 4, 1996, Radio 94
sold KOOL(AM) to Salem Media of Arizona, Inc.
Radio 95 of Phoenix Limited Partnership
Radio 95 of Phoenix Limited Partnership ("Radio 95") was formed on May 3,
1996, to acquire and operate radio stations. Radio 95 was formed by Colfax as
the 1 percent general partner and Equity Group Holdings as the 99 percent
limited partner. On September 12, 1996, Radio 95 acquired KYOT-FM, KZON-FM,
KOY(AM), and KISO(AM), each in Phoenix, Arizona; KIDO(AM) and KLTB(FM), each in
Boise, Idaho; KARO(FM) in Caldwell, Idaho; WMIL-FM in Waukesha, Wisconsin; and
WOKY(AM) in Milwaukee, Wisconsin, for $95,000,000.
F-278
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of Stations
On August 24, 1996, Chancellor Radio Broadcasting Company ("Chancellor"), a
Delaware Corporation, agreed to purchase substantially all of the assets of
CALP, Radio 570, Radio 100, Radio 100 of Maryland, Radio 94 (with the exception
of KOOL(AM)), and Radio 95 (with the exception of KIDO(AM), KLTB(FM), and
KARO(FM)) for total consideration of $365,000,000 plus the net working capital
of the stations. The transaction closed on January 23, 1997. The agreement
stipulates that the purchase price for the assets be allocated among the limited
partnerships as follows:
CALP........................................................ $ 50,000,000
Radio 570................................................... 21,000,000
Radio 100................................................... 85,000,000
Radio 100 of Maryland....................................... 90,000,000
Radio 94.................................................... 30,000,000
Radio 95.................................................... 89,000,000
------------
$365,000,000
============
On October 28, 1996, Jacor Broadcasting of Idaho, Inc., an Ohio
corporation, entered into an agreement to purchase substantially all of the
assets of radio stations KIDO(AM), KLTB(FM), and KARO(FM) for $11,000,000. The
transaction closed on January 31, 1997.
Partnership Allocations
The partnerships distribute cash from operations and allocate net profits
or losses to the partners, in general, in accordance with their stated interests
except that no partner shall receive any distribution from a partnership until
such time as the net invested capital of the general partner and Class A Limited
Partner have been distributed, along with a cumulative priority return on the
average net invested capital at an annual rate equal to the prime rate plus one
quarter of one percent compounded monthly.
In accordance with the Company's debt agreement (described below)
distributions to partners may be permitted on a quarterly basis if certain
requirements are met.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Barter Transactions
The partnerships enter into barter transactions in which they provide
on-air advertising in exchange for goods and services. Revenues and expenses
from barter transactions are presented in the accompanying statement of revenues
and expenses based on the estimated fair market value of the goods or services
received. Barter revenue approximated $1,925,000, $1,590,000, and $1,870,000 for
the years ended December 31, 1996, 1995, and 1994, respectively; while barter
expense approximated $1,763,000, $1,486,000, and $1,520,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
F-279
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the partnerships do not pay Federal and
state income taxes but rather allocate profits and losses to the partners for
inclusion in their respective income tax returns.
Buildings and Leasehold Improvements
Buildings and leasehold improvements are recorded at cost or appraised
value at acquisition. Depreciation is recorded using the straight-line method
over 31.5 or 40 years as prescribed by the Internal Revenue Code.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost or appraised value
at acquisition. Depreciation is recorded using the straight-line method over the
estimated useful life of the assets, which is typically 5 to 7 years.
Intangible Assets
Intangible assets are recorded at cost or appraised value at acquisition.
Amortization is recorded over their useful lives. The estimated useful lives of
intangible assets as of December 31, 1996, are as follows:
USEFUL LIFE
-----------
FCC Licenses................................................ 7-25 years
Covenants Not to Compete.................................... 3 years
Employment Agreements....................................... 2 years
Organizational Costs........................................ 5 years
Start-up Costs.............................................. 5 years
Land
Certain partners have contributed to Radio 570 a parcel of land in
Germantown, Maryland which is being used as the site for a new array of
broadcasting towers. The land has been recorded at its original purchase price
plus costs related to preparing the land for its intended use.
Radio 100 of Maryland acquired a parcel of land and property in Washington,
D.C., in connection with the acquisition of WJZE-FM. This parcel of land was
recorded at its appraised value at acquisition. This land was sold in February
1995.
Radio 100 acquired a parcel of land in Nowthen, Minnesota, through the
purchase of KQQL-FM. This parcel of land was recorded at its appraised value at
acquisition.
Radio 95 acquired various parcels of land located in Phoenix, Milwaukee,
and Boise in connection with its purchase of nine stations during 1996. These
parcels of land were recorded at their estimated market value at acquisition.
Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
F-280
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
In 1995 the Company adopted Statement of Financial Accounting Standard
("SFAS") No. 107, "Disclosure about Fair Value of Financial Instruments," which
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet.
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities, approximate their fair
value due to the immediate or short-term maturity of such instruments. The
carrying amount reported for long-term debt approximates fair value due to the
debt being priced at floating rates (see Note 7 for additional information).
4. PROPERTY AND EQUIPMENT:
The components of property and equipment at December 31, 1996 and 1995, are
summarized below:
The components of FCC licenses and other noncurrent assets at December 31,
1996 and 1995, are summarized below:
AS OF DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
FCC licenses............................ $163,988,330 $ 39,505,773 $ 39,505,773
Covenants not to compete................ 1,931,834 8,493,147 8,493,147
Start-up and organization costs......... 2,489,973 2,132,587 2,153,036
Other................................... 1,376,763 958,245 1,891,395
------------ ------------ ------------
169,786,900 51,089,752 52,043,351
Less -- Accumulated amortization........ (22,207,301) (18,706,165) (14,389,548)
------------ ------------ ------------
$147,579,599 $ 32,383,587 $ 37,653,803
============ ============ ============
6. RELATED-PARTY TRANSACTIONS:
Each partnership is involved in certain transactions with other
partnerships in the radio group related to sharing of services and purchasing.
These transactions are settled on a current basis through adjustments to
partners' equity accounts.
F-281
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On January 18, 1995, CALP and Radio 100 of Maryland each entered into a 10
year agreement to lease tower space from Colfax Towers, Inc. The annual rental
payment for CALP equaled $31,200 and $30,000 for the years ended December 31,
1996 and 1995, respectively. The annual rental payment for Radio 100 of Maryland
equaled $37,200 and $36,000 for the years ended December 31, 1996 and 1995,
respectively. Colfax Towers, Inc., is owned by the shareholders of Colfax
Communications, Inc.
Employees of Colfax perform activities on behalf of and oversee the
operations of the radio stations included in the radio group. Colfax does not
charge any fees to the radio stations for the performance of such services.
Corporate expenses of $1,240,253, $1,354,296, and $1,144,082 related to those
services are not included in the financial statements of the radio group for the
years ending December 31, 1996, 1995, and 1994, respectively. These corporate
expenses were funded directly by the owners of Colfax Communications, Inc.
7. LONG-TERM DEBT:
On December 27, 1995, CALP, Radio 570, Radio 100, and Radio 100 of Maryland
entered into a $40 million revolving loan agreement. On April 2, 1996, under an
amendment to the loan agreement, CALP, Radio 570, Radio 100, Radio 100 of
Maryland, and Radio 94 (collectively, the "Borrowers") increased the amount
available under the revolving loan agreement to $60 million. At December 31,
1996, $55,650,000 was outstanding under this agreement. The proceeds were
allocated to each borrower on the basis of each station's capital account as
follows:
CALP........................................................ $ 5,702,360
Radio 570................................................... 4,156,587
Radio 100................................................... 16,423,860
Radio 100 of Maryland....................................... 9,214,544
Radio 94.................................................... 20,152,649
-----------
$55,650,000
===========
The initial proceeds were used to repay the indebtedness of CALP to make
certain permitted distributions to partners of the Borrowers, and for working
capital purposes in the operations of the Borrowers. Borrowings under this
agreement bear interest at floating rates equal to prime and/or LIBOR (as
defined in the loan agreement) plus an applicable margin determined by a
leverage ratio. The expiration date of the loan agreement is December 31, 2002.
Under the loan agreement, the Borrowers are required to maintain a specific
leverage ratio and certain ratios pertaining to cash flow coverage.
In connection with the sale of the stations (discussed in Note 2), the debt
was repaid in full in January 1997.
F-282
COLFAX COMMUNICATIONS, INC. RADIO GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS:
The Radio Group has entered into various contracts for exclusive radio
broadcasting rights and other programming. In addition, the partnerships lease
office space and have entered into various service contracts, including certain
personal service contracts. These broadcasting rights, leases and service
contracts expire over periods ranging from 1997 to 2012. The minimum future
commitments under these agreements, leases and service contracts are as follows:
During 1995, the Radio Group recorded restructuring costs of $737,729 at
certain radio stations. These costs included severance and salary payments to
terminated employees of $357,563, costs related to hiring a new general manager
at one of the radio stations of $135,519 and costs related to a loss on space
vacated by one of the radio stations of $244,647.
F-283
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SFX Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of SFX
Broadcasting, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SFX Broadcasting, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 5, 1998 except for
Notes 2 and 14
as to which the date
is April 27, 1998
F-284
(This page intentionally left blank)
F-285
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
Current Assets:
Cash and cash equivalents............................. $ 38,464 $ 24,686 $ 10,601
Cash pledged for letters of credit.................... -- -- 20,000
Accounts receivable less allowance for doubtful
accounts of $2,400 in 1998, $2,264 in 1997 and
$1,620 in 1996..................................... 64,447 71,241 47,275
Assets under contract for sale........................ 38,268 42,883 8,352
Prepaid and other current assets...................... 3,791 3,109 2,461
Receivable from SFX Entertainment..................... 125,378 11,539 --
---------- ---------- --------
Total current assets.......................... 270,348 153,458 88,689
Property and equipment:
Land.................................................. 6,169 6,169 6,791
Buildings and improvements............................ 20,389 18,295 11,485
Broadcasting equipment and other...................... 68,714 67,821 54,736
---------- ---------- --------
95,272 92,285 73,012
Less accumulated depreciation and amortization.......... (19,976) (17,456) (10,192)
---------- ---------- --------
Net property and equipment.............................. 75,296 74,829 62,820
Intangible Assets:
Broadcast licenses.................................... 915,020 913,887 558,640
Goodwill.............................................. 131,601 131,601 98,165
Deferred financing costs.............................. 22,250 22,250 19,504
Other................................................. 5,406 5,406 4,727
---------- ---------- --------
1,074,277 1,073,144 681,036
Less accumulated amortization........................... (46,898) (39,580) (16,933)
---------- ---------- --------
Net intangible assets................................... 1,027,379 1,033,564 664,103
Net assets to be distributed to shareholders............ 11,454 102,144 --
Deposits and other payments for pending acquisitions.... 4,295 5,830 31,692
Other assets............................................ 5,123 5,790 12,023
---------- ---------- --------
Total Assets.................................. $1,393,895 $1,375,615 $859,327
========== ========== ========
See accompanying notes.
F-286
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31,
MARCH 31, ----------------------
1998 1997 1996
----------- ---------- --------
(UNAUDITED)
Current Liabilities:
Accounts payable........................................ $ 14,624 $ 8,665 $ 10,921
Accrued expenses........................................ 11,966 19,246 21,913
Payable to former national sales representative......... 11,783 23,025 --
Accrued interest and dividends.......................... 25,851 20,475 7,111
Income tax payable...................................... 115,037 -- --
Current portion of long-term debt....................... 535 509 231
Current portion of capital lease obligations............ 82 101 150
---------- ---------- --------
Total current liabilities................................. 179,878 72,021 40,326
Long-term debt, less current portion...................... 763,882 763,966 480,875
Capital lease obligations, less current portion........... 103 126 204
Deferred income taxes..................................... 77,781 102,681 91,352
---------- ---------- --------
Total liabilities......................................... 1,021,644 938,794 612,757
Redeemable preferred stock................................ 376,615 361,996 145,999
Minority interests -- SFX Entertainment................... 56,200 -- --
Commitments and contingencies
Shareholders' Equity (Deficit):
Class A Voting common stock, $.01 par value; 100,000,000
shares authorized; and 9,562,602 issued and 9,532,157
outstanding at March 31, 1998, 9,508,379 issued and
9,477,934 outstanding at December 31, 1997 and
8,089,367 issued and 8,063,348 outstanding at
December 31, 1996.................................... 95 95 81
Class B Voting convertible common stock, $.01 par value;
10,000,000 shares authorized; 1,190,911 issued and
1,047,037 outstanding at March 31, 1998 and at
December 31, 1997 and 1,208,810 issued and 1,064,936
outstanding at December 31, 1996..................... 12 12 12
Additional paid-in capital................................ 183,141 185,537 189,920
Treasury Stock; 174,319 shares at March 31, 1998 and
December 31, 1997 and 170,192 shares at December 31,
1996.................................................... (6,523) (6,523) (6,393)
Accumulated deficit....................................... (237,289) (104,296) (83,049)
---------- ---------- --------
Total shareholders' equity (deficit)...................... (60,564) 74,825 100,571
---------- ---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)...... $1,393,895 $1,375,615 $859,327
========== ========== ========
See accompanying notes.
F-287
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ---------------------------------
1998 1997 1997 1996 1995
----------- --------- --------- --------- ---------
(UNAUDITED)
Gross revenues................................ $ 74,405 $ 50,994 $ 306,842 $ 162,011 $ 87,140
Less agency commissions....................... (8,654) (6,003) (36,478) (18,950) (10,310)
----------- --------- --------- --------- ---------
Net revenues.................................. 65,751 44,991 270,364 143,061 76,830
Station operating expenses.................... 44,636 29,916 167,063 92,816 51,039
Depreciation, amortization, duopoly
integration costs and acquisition related
costs....................................... 10,653 7,485 38,232 17,311 9,137
Corporate expenses, net of $2,206 allocated to
SFX Entertainment in 1997, including related
party expenses of $151 in 1996 and $330 in
1995, net of related party advisory fees of
$802 in 1996................................ 1,569 1,035 6,837 6,261 3,797
Non-cash stock compensation................... 138 156 624 52 --
Non-recurring and unusual charges, including
adjustments to broadcast rights agreement... 24,974 -- 20,174 28,994 5,000
----------- --------- --------- --------- ---------
Total operating expenses...................... 81,970 38,592 232,930 145,434 68,973
----------- --------- --------- --------- ---------
Operating income (loss)....................... (16,219) 6,399 37,434 (2,373) 7,857
Investment income............................. 202 1,654 2,821 4,017 650
Interest expense.............................. (19,190) (12,712) (64,506) (34,897) (12,903)
Loss on sale of radio station................. -- -- -- (1,900) --
----------- --------- --------- --------- ---------
Loss from continuing operations before income
taxes and extraordinary item................ (35,207) (4,659) (24,251) (35,153) (4,396)
Income tax expense............................ 210 285 810 480 --
----------- --------- --------- --------- ---------
Loss from continuing operations before
extraordinary item.......................... (35,417) (4,944) (25,061) (35,633) (4,396)
Discontinued operations:
Income (loss) from operations to be
distributed to shareholders, net of
taxes..................................... (97,576) (1,544) 3,814 -- --
Loss on disposal of operations to be
distributed to shareholders............... -- -- -- -- --
----------- --------- --------- --------- ---------
Income (loss) from discontinued operations.... (97,576) (1,544) 3,814 -- --
----------- --------- --------- --------- ---------
Loss before extraordinary item................ (132,993) (6,488) (21,247) (35,633) (4,396)
Extraordinary loss on debt retirement......... -- -- -- 15,219 --
----------- --------- --------- --------- ---------
Net loss...................................... (132,993) (6,488) (21,247) (50,852) (4,396)
Redeemable preferred stock dividends and
accretion................................... 10,350 7,952 38,510 6,061 291
----------- --------- --------- --------- ---------
Net loss applicable to common stock........... $ (143,343) $ (14,440) $ (59,757) $ (56,913) $ (4,687)
=========== ========= ========= ========= =========
Loss per basic common share from continuing
operations.................................. $ (4.34) $ (1.41) $ (6.67) $ (5.51) $ (0.71)
(Loss) income per basic common share from
operations to be distributed to
shareholders................................ (9.24) (0.17) 0.40 -- --
----------- --------- --------- --------- ---------
Loss per basic common share before
extraordinary item.......................... $ (13.58) $ (1.58) $ (6.27) $ (5.51) $ (0.71)
Extraordinary loss on debt retirement per
basic common share.......................... -- -- -- (2.01) --
----------- --------- --------- --------- ---------
Loss per basic common share................... $ (13.58) $ (1.58) $ (6.27) $ (7.52) $ (0.71)
=========== ========= ========= ========= =========
Weighted average common shares outstanding.... 10,554,130 9,161,433 9,526,429 7,563,600 6,595,728
=========== ========= ========= ========= =========
See accompanying notes.
F-288
SFX BROADCASTING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND THREE MONTHS ENDED MARCH 31,
1998
(DOLLARS IN THOUSANDS)
CLASS A CLASS B PAID-IN TREASURY ACCUMULATED
COMMON COMMON CAPITAL STOCK DEFICIT TOTAL
------- ------- -------- -------- ----------- ---------
Balance, December 31, 1994..... $48 $ 9 $ 76,600 -- $ (27,801) $ 48,856
Public offering, net of
expenses..................... 17 39,149 39,166
Redemption of Class C Common... (459) (459)
Accretion and dividends on
redeemable preferred stock... (291) (291)
Conversion of Class A Common to
Class B Common............... (1) 1 --
Decrease in unrealized holding
losses....................... 185 185
Net loss....................... (4,396) (4,396)
--- --- -------- ------- --------- ---------
Balance, December 31, 1995..... $64 $10 $115,184 $ -- $ (32,197) $ 83,061
=== === ======== ======= ========= =========
Accretion and dividends on
redeemable preferred stock... (6,061) (6,061)
Issuance upon exercise of stock
options...................... 370 370
Issuance of warrants to SCMC... 8,905 8,905
Issuance of equity securities
for MMR Merger............... 17 2 71,522 71,541
Repurchase of common stock..... (6,393) (6,393)
Net loss....................... (50,852) (50,852)
--- --- -------- ------- --------- ---------
Balance, December 31, 1996..... $81 $12 $189,920 $(6,393) $ (83,049) $ 100,571
=== === ======== ======= ========= =========
Issuance upon exercise of stock
options...................... 11 21,132 21,143
Issuance upon exercise of Class
B Warrants................... 2,476 2,476
Issuance of stock for
acquisitions................. 3 9,519 9,522
Payment from shareholder....... 1,000 1,000
Accretion and dividends on
redeemable preferred stock... (38,510) (38,510)
Repurchase of common stock..... (130) (130)
Net loss....................... (21,247) (21,247)
--- --- -------- ------- --------- ---------
Balance, December 31, 1997..... $95 $12 $185,537 $(6,523) $(104,296) $ 74,825
=== === ======== ======= ========= =========
Redeemable preferred stock
dividends and accretion...... (10,350) (10,350)
Other, principally shares
issued pursuant to stock
option plans................. 7,954 7,954
Net loss....................... (132,993) (132,993)
--- --- -------- ------- --------- ---------
Balance at March 31, 1998
(unaudited).................. $95 $12 $183,141 $(6,523) $(237,289) $ (60,564)
=== === ======== ======= ========= =========
See accompanying notes.
F-289
SFX BROADCASTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- --------
(UNAUDITED)
Operating activities:
Net loss.............................................. $(132,993) $ (6,488) $ (21,247) $ (50,852) $ (4,396)
Income from operations to be distributed to
shareholders........................................ 27,296 1,544 (3,814) -- --
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation........................................ 2,986 2,253 10,955 5,972 2,658
Amortization........................................ 7,546 4,932 26,406 10,202 5,099
Noncash portion of non-recurring and unusual
charge............................................ 4,196 -- 4,712 9,878 --
Extraordinary loss on debt repayment................ -- -- -- 15,219 --
Loss on sale of radio station and other noncash
items............................................. -- -- -- 1,900 (207)
Deferred taxes...................................... (13,500) -- -- (710) --
Changes in assets and liabilities, net of amounts
acquired:
Accounts receivable............................... 6,794 6,076 (22,189) (13,839) (5,164)
Prepaid and other assets.......................... 6,140 (1,256) 2,599 (1,704) 2,052
Accrued interest and dividends.................... 12,098 11,966 345 3,841 6
Accounts payable, accrued expenses and other
liabilities..................................... (14,991) (9,959) 6,275 6,646 451
--------- --------- --------- --------- --------
Cash provided by (used in) continuing
operations................................... (94,428) 9,068 4,042 (13,447) 499
Cash from operating activities of SFX
Entertainment.............................. 9,140 307 1,005 -- --
--------- --------- --------- --------- --------
Net cash provided by (used in) operating
activities................................... (85,288) 9,375 5,047 (13,447) 499
Investing activities:
Purchase of stations and related businesses, net of
cash acquired..................................... -- (63,667) (408,788) (493,433) (26,057)
Proceeds from sales of stations and other assets.... 4,692 717 1,836 56,943 703
Deposits and other payments for pending
acquisitions...................................... (59) (14,545) (3,594) (30,799) (3,000)
Purchase of property and equipment.................. (3,602) (2,763) (12,409) (3,224) (3,261)
Sale of short-term investments...................... -- -- -- -- 7,918
Loans and advances to related parties............... -- (2,800) (2,800) -- (2,000)
Net tax liability on Spin-Off to be reimbursed...... 105,975 -- -- -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... 107,006 (83,058) (425,755) (470,513) (25,697)
Cash from investing activities of SFX
Entertainment..................................... (379,782) (22,612) (73,296) -- --
--------- --------- --------- --------- --------
Net cash used in investing activities........... (272,776) (105,670) (499,051) (470,513) (25,697)
Financing activities:
Payments on long-term debt, including prepayment
premiums.......................................... (100) (50,123) (73,863) (110,396) (22,521)
Additions to debt issuance costs.................... -- (52) (3,006) (19,505) (2,139)
Proceeds from issuance of senior and subordinated
debt.............................................. -- 20,000 356,500 501,500 22,000
Net proceeds from sales of preferred stock.......... -- 215,258 215,258 143,445 --
Dividends paid on preferred stock................... (2,459) (2,459) (23,487) (4,983) --
Proceeds from issuance of common stock and
shareholders...................................... 3,759 46 24,619 -- 39,166
Purchases of treasury stock......................... -- -- (130) (6,393) --
Stock, redemptions, retirements and other........... -- -- (1,000) (1,000) (2,609)
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 1,200 182,670 494,891 502,668 33,897
Cash from financing activities of SFX
Entertainment..................................... 458,654 (29) (823) -- --
--------- --------- --------- --------- --------
Net cash provided by financing activities....... 459,854 182,641 494,068 502,668 33,897
Net increase in cash and cash equivalents........... 101,790 86,346 64 18,708 8,699
Cash and cash equivalents at beginning of period.... 30,666 30,601 30,601 11,893 3,194
Cash of SFX Entertainment at the end of period...... (93,992) (2,622) (5,979) -- --
--------- --------- --------- --------- --------
Cash and equivalents at end of period............... $ 38,464 $ 114,325 $ 24,686 $ 30,601 $ 11,893
========= ========= ========= ========= ========
Supplemental disclosure of cash flow information (See Note 13).
See accompanying notes.
F-290
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
SFX Broadcasting, Inc. (the "Company"), a Delaware corporation, is one of
the largest radio station groups in the United States. At December 31, 1997, the
Company owned and operated, provided programming to or sold advertising on
behalf of sixty-three FM stations and nineteen AM stations serving the following
twenty-three markets: Dallas, Texas; Houston, Texas; Pittsburgh, Pennsylvania;
Milwaukee, Wisconsin; San Diego, California; Providence, Rhode Island;
Indianapolis, Indiana; Charlotte, North Carolina; Hartford, Connecticut;
Greensboro, North Carolina; Nashville, Tennessee; Raleigh-Durham, North
Carolina; Jacksonville, Florida; Richmond, Virginia; Albany, New York;
Greenville-Spartanburg, South Carolina; Tucson, Arizona;
Springfield/Northampton, Massachusetts; Wichita, Kansas; Daytona Beach, Florida;
New Haven, Connecticut; Jackson, Mississippi and Biloxi, Mississippi.
In addition, in 1997, the Company, through the acquisitions of
Delsener/Slater Enterprises, Ltd. ("Delsener/Slater"), a concert promotion
company based in New York City, Sunshine Promotions, Inc., ("Sunshine
Promotions"), an Indianapolis concert promotion company which owns the Deer
Creek Music Theater and the Polaris Amphitheater and certain related companies,
and certain companies which collectively own and operate the Meadows Music
Theater, (the "Meadows"), a 25,000-seat indoor/outdoor complex located in
Hartford, Connecticut, became one of the largest live entertainment groups in
the United States.
As more fully described in Note 2, the Company has entered into an
Agreement and Plan of Merger and intends to distribute to its shareholders its
live entertainment business. Therefore, the live entertainment business has been
classified as net assets to be distributed to shareholders and income from
operations to be distributed to shareholders in the consolidated financial
statements. The Company has also recently completed substantial additional
acquisitions in the live entertainment business (see Note 14).
NOTE 2 -- RECENT DEVELOPMENT; SPIN-OFF AND PENDING MERGER
On August 24, 1997, the Company entered into an Agreement and Plan of
Merger with SBI Holdings Corporation, a wholly owned subsidiary of Capstar
Broadcasting Corporation ("Buyer"), and SBI Radio Acquisition Corporation
pursuant to which the Company will become a wholly owned subsidiary of Buyer
(the "Merger"). In the Merger, holders of the Company's Class A Common Stock
will receive $75.00 per share, Class B Common Stock will receive $97.50 per
share, and the 6 1/2% Series D Cumulative Convertible Exchangeable Preferred
Stock will convert into the right to receive an amount equal to the product of
(i) $75.00 and (ii) the number of shares of Class A Common Stock into which that
share would convert immediately prior to the consummation of the Merger; in each
case, subject to adjustment under certain circumstances. Pursuant to the merger
agreement, the Company distributed the net assets (the "Spin-Off") of its live
entertainment business ("SFX Entertainment") pro-rata to its stockholders and
the holders of certain warrants, options and stock appreciation rights on April
27, 1998.
Until the consummation of the Merger, senior management of the Company will
continue to serve in their present capacities with the Company while devoting
such time as they deem reasonably necessary to conduct the operations of SFX
Entertainment. Although SFX Entertainment has not yet entered into employment
agreements with such members of senior management, most members of existing
management have agreed in principle to become full-time employees of SFX
Entertainment and Mr. Sillerman, Executive Chairman, will continue to be
Executive Chairman of SFX Entertainment upon consummation of the Merger.
SFX Entertainment is required to repay to the Company all amounts paid in
connection with its concert promotion acquisitions and certain capital
improvements since the date of the Merger agreement and SFX Entertainment will
assume all the liabilities and obligations related to such company's business.
As of March 31, 1998, the Company had a $5.4 million receivable from SFX
Entertainment related to such obligations. In April 1998, SFX Entertainment
reimbursed such amount to the Company.
F-291
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon the consummation of the Merger, all net working capital of the
Company, as determined in accordance with the merger agreement, will be paid to
SFX Entertainment by the Company or any net negative working capital will be
paid to the Company by SFX Entertainment. As of March 31, 1998, the Company
estimates that the working capital to be paid by SFX Entertainment would have
been approximately $3.3 million.
The consummation of the Merger is subject to the receipt of certain
regulatory approvals. In February 1998, the Company received the consents of the
holders of the Series E Preferred Stock and certain of the Company's outstanding
notes and in March 1998 the required approval of the shareholders.
SFX Entertainment also will be responsible for any taxes of the Company
resulting from the Spin-Off, including any income taxes to the extent that the
income taxes result from gain on the distribution that exceeds the net operating
losses of the Company and SFX Entertainment available to offset gain. In
connection with the use of the Company's NOL's to offset the Spin-Off gain, a
tax benefit of $13.5 million has been recorded in operations to be distributed
to shareholders. Such tax benefit includes a $8.5 million reversal of the
Company's deferred tax asset valuation allowance at December 31, 1997, the
remainder reflects a benefit for a $5.0 million estimated use of the Company's
NOL generated during the first quarter of 1998. In addition, the Spin-Off gain
was also offset by the Company NOL's generated from the exercise of stock
options in 1997. As a result, the deferred tax asset valuation allowance at
December 31, 1997 was reduced by an additional $11.4 million and the related tax
benefit has reduced the income (loss) from operations to be distributed to
shareholders, net of taxes, in the consolidated statement of operations for the
three months ended March 31, 1998. Also included in income (loss) from
operations to be distributed to shareholders, net of tax benefit for the three
months ended March 31, 1998 is estimated tax expense of $117 million related to
the taxable gain on the spin-off.
The actual amount of the tax indemnification payment will be based largely
on the excess of the value of SFX Entertainment's Common Stock on the date of
the Spin-Off over the tax basis of that stock. Management estimates that SFX
Entertainment will be required to pay approximately $120.0 million pursuant to
such indemnification obligation, based on the $30 1/2 average per share price on
the Spin-Off date. The Company expects that such indemnity payment will be due
on or about June 15, 1998. It is the Company's understanding that SFX
Entertainment intends to pay such indemnification amount with the proceeds from
a public offering of SFX Entertainment's capital stock. No assurances can be
given that SFX Entertainment's public offering will be successful or, if
successful, that such payment will be received in time by the Company to pay
such tax liability.
The Company anticipates that the Merger will be consummated in the second
quarter of 1998. There can be no assurance that the regulatory approvals will be
given or that the conditions to consummating the Merger will be met.
The operations of SFX Entertainment have been presented in the financial
statements as operations to be distributed to shareholders pursuant to the
Spin-Off. During the three months ended March 31, 1998, revenue and loss from
operations for SFX Entertainment were $61.0 million and $27.6 million,
respectively. Included in operating expenses is $1.3 million of allocated
corporate expenses, net of $133,000 of reimbursements from Triathlon (Note 9).
Additionally, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-off of $6.7 million has been allocated to SFX
Entertainment. During the year ended December 31, 1997, revenue and income from
operations for SFX Entertainment were $96.1 million and $5.1 million,
respectively. Included in operating expenses is $2.2 million of allocated
corporate expenses net of $1.8 million of reimbursement from Triathlon (Note 9).
Additional, interest expense relating to the debt to be distributed to the
shareholders pursuant to the Spin-Off of $1.6 million has been allocated to SFX
Entertainment. The Company provides various administrative services to SFX
Entertainment. It is the Company's policy to allocate these expenses on the
basis of direct usage. In the opinion of management, this
F-292
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of allocation is reasonable and allocated expenses approximate what SFX
Entertainment would have occurred on a stand-alone basis.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
Radio Broadcasting Acquisitions. In August 1997, the Company acquired two
radio stations operating in Pittsburgh, Pennsylvania and two radio stations in
Milwaukee, Wisconsin for $35.0 million (the "Hearst Acquisition").
In August 1997, the Company exchanged one radio station in Pittsburgh,
Pennsylvania, which the Company had recently acquired from Secret Communications
Limited Partnership ("Secret Communications") (part of the Secret Communications
Acquisition, as defined below), and $20.0 million in cash for one radio station
in Charlotte, North Carolina (the "Charlotte Exchange"). The Company operated
the radio station in Charlotte, North Carolina pursuant to a local market
agreement during July 1997.
In July 1997, the Company acquired substantially all of the assets of four
radio stations operating in Richmond, Virginia for approximately $46.5 million
in cash, including payments made to buy out minority equity interests which the
Company had originally agreed to provide to certain of the sellers (the
"Richmond Acquisition").
In April 1997, the Company acquired substantially all of the assets of
three radio stations in Indianapolis, Indiana and in June 1997 the Company
acquired substantially all of the assets of four stations in Pittsburgh,
Pennsylvania from Secret Communications for a total purchase price of $255.0
million in cash (collectively, the "Secret Communications Acquisition").
Also in April 1997, the Company sold one radio station operating in Little
Rock, Arkansas (the "Little Rock Disposition") to Triathlon Broadcasting
Company, a related party. The station was sold for $4.1 million, of which $3.5
million had been held as a deposit by the Company since 1996. No gain or loss
was recorded on the transaction as the radio station was recently acquired in
connection with the MMR Merger, as defined below.
In March 1997, the Company acquired two radio stations operating in
Houston, Texas, for a purchase price of approximately $43.0 million in cash,
exclusive of certain additional contingent liabilities which may become payable
(the "Texas Coast Acquisition"). The Texas Coast Acquisition increased the
number of stations the Company owns in the Houston market to four.
In March 1997, the Company exchanged one radio station operating in
Washington D.C./Baltimore, Maryland, for two radio stations operating in Dallas,
Texas (the "CBS Exchange") and completed the sale of two radio stations
operating in the Myrtle Beach, South Carolina market for $5.1 million payable in
installments over a five year period (present value approximately $4.3 million).
The CBS Exchange was structured as a substantially tax free exchange of
like-kind assets. The contract for the sale of the Myrtle Beach stations was in
place prior to the merger with Multi-Market Radio, Inc. ("MMR"). No gain or loss
was recognized on the Myrtle Beach stations that were recently acquired in the
MMR Merger, as defined below.
Costs of $871,000 related to the reformatting of the Dallas stations was
included in depreciation, amortization, duopoly integration costs and
acquisition related costs in 1997.
In February 1997, the Company purchased WWYZ-FM, operating in Hartford,
Connecticut, for a purchase price of $25.9 million in cash (the "Hartford
Acquisition"). The Hartford Acquisition increased the number of stations the
Company owns in the Hartford market to five.
F-293
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, the Company purchased one radio station operating in
Albany, New York, for $1.0 million in cash (the "Albany Acquisition").
In December 1996, the Company acquired substantially all of the assets of
WHSL-FM, operating in Greensboro, North Carolina, for a purchase price of $6.0
million in cash (the "Greensboro Acquisition") and exchanged radio station
KRLD-AM, Dallas, Texas and the Texas State Networks for radio station KKRW-FM,
Houston, Texas (the "Houston Exchange"). The Houston Exchange was structured as
a substantially tax free exchange of like kind assets. No gain or loss was
recorded on the Houston Exchange as the book values of KRLD-AM and the Texas
State Networks approximated the fair value of the assets of KKRW-FM.
In November 1996, the Company consummated its merger with MMR (the "MMR
Merger"), pursuant to which it acquired MMR in exchange for 1,631,450 shares of
Class A Common Stock, 208,810 shares of Class B Common Stock both valued at $34
per share and other equity securities with a total market value for all
securities issued of approximately $71.5 million in cash (Note 7). Concurrently
with the consummation of the MMR Merger, the Company paid approximately $43.0
million in cash to satisfy outstanding indebtedness of MMR. MMR was organized in
1992 by the Company's executive chairman and another officer and director of the
Company. The Company's executive chairman owned a substantial equity interest in
MMR which was exchanged for Class B Common Stock of the Company upon the
consummation of the MMR Merger. MMR owned and operated, provided programming to
or sold advertising on behalf of thirteen FM stations and on AM station located
in eight markets: New Haven, Connecticut; Hartford, Connecticut;
Springfield/Northampton, Massachusetts; Daytona Beach, Florida; Augusta,
Georgia; Biloxi, Mississippi; Myrtle Beach, South Carolina and Little Rock,
Arkansas. Prior to the MMR Merger, MMR had entered into agreements to sell two
stations operating in Myrtle Beach, South Carolina and one station operating in
Little Rock, Arkansas (the "MMR Dispositions"). The MMR Dispositions, which were
completed in 1997 as described above, are classified as assets under contract
for sale in the accompanying balance sheet at December 31, 1996. The Company
also terminated a Joint Sales Agreement ("JSA") with one station operating in
Augusta, Georgia and its Local Marketing Agreement ("LMA") with one station
operating in Myrtle Beach, South Carolina in December 1996.
In October 1996, the Company sold radio station KTCK-AM, Dallas, Texas for
approximately $13.4 million in cash, net of certain sale expenses (the "Dallas
Disposition"). The Company acquired the assets of KTCK-AM in Dallas, Texas (the
"Dallas Acquisition") in September 1995 from a third party for $8,633,000 in
cash (including $133,000 in transaction costs) and $2,000,000 of 6% current
coupon Series C Redeemable Preferred Stock (Note 6). The purchase agreement
contains a provision for a contingent payment not to exceed $7,500,000 payable
in 1998 if the Company's Dallas properties achieve certain ratings and financial
goals. In 1996, the Company recorded a loss of $1.9 million on the Dallas
disposition, based on its estimate of the ultimate resolution of the
contingency. During 1997, the company paid $3,000,000 to the Seller in
connection with this provision, leaving a remaining accrual at December 31, 1997
of approximately $300,000, and it is unable to reasonably estimate future
amounts due, if any. The Company had provided programming to KTCK-AM pursuant to
an LMA since March 1, 1995.
In July 1996, the Company acquired Liberty Broadcasting, Inc. ("Liberty
Broadcasting") for a purchase price of approximately $239.7 million in cash,
including $10.4 million for working capital (the "Liberty Acquisition"). Liberty
Broadcasting was a privately-held radio broadcasting company which owned and
operated, provided programming to or sold advertising on behalf of fourteen FM
and six AM radio stations (the "Liberty Stations") located in six markets:
Washington, DC/Baltimore, Maryland; Nassau-Suffolk, New York; Providence, Rhode
Island; Hartford, Connecticut; Albany, New York and Richmond, Virginia.
F-294
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1996, the Company sold three of the Liberty Stations operating in
the Washington, DC/Baltimore, Maryland market (the "Washington Dispositions")
for $25.0 million. No gain or loss was recognized on the Washington
Dispositions.
In July 1996, the Company acquired from Prism Radio Partners, L.P.
("Prism"), substantially all of the assets used in the operation of eight FM and
five AM radio stations located in four markets: Jacksonville, Florida; Raleigh,
North Carolina; Tucson, Arizona and Wichita, Kansas. In September 1996, the
Company also acquired from Prism substantially all of the assets of three radio
stations operating in Louisville, Kentucky (the "Louisville Stations"), upon
renewal of the Federal Communications Commission ("FCC") licenses of such
stations (the "Louisville Acquisition") (collectively the "Prism Acquisition").
The total purchase price for the Prism Acquisition was approximately $105.3
million in cash. In October 1996, the Company sold the Louisville Stations (the
"Louisville Disposition") for $18.5 million in cash. The Company recognized no
gain or loss on the Louisville Disposition.
In July 1996, the Company acquired substantially all of the assets of
WJDX-FM, Jackson, Mississippi for a purchase price of approximately $3.2
million. In addition, in August 1996, the Company acquired substantially all of
the assets of WSTZ-FM and WZRX-AM, each operating in Jackson, Mississippi, for
approximately $3.5 million in cash (collectively, the "Jackson Acquisitions").
In June 1996, the Company acquired substantially all of the assets of
WROQ-FM, Greenville, South Carolina, for approximately $14.0 million in cash
(the "Greenville Acquisition") and WTRG-FM and WRDU-FM, both operating in
Raleigh, North Carolina, and WMFR-AM, WMAG-FM and WTCK-AM (formerly WWWB-AM),
each operating in Greensboro, North Carolina for approximately $36.8 million in
cash (the Raleigh-Greensboro Acquisition").
In February 1996, the Company acquired radio stations WTDR-FM and WLYT-FM
(formerly WEZC-FM), both operating in Charlotte, North Carolina (the "Charlotte
Acquisition"), for an aggregate purchase price of $24.3 million in cash. Costs
of $785,000 related to the integration and reformatting of the Charlotte
stations were included in depreciation, amortization, duopoly integration costs
and acquisition related costs in 1996.
In April 1995, the Company acquired all of the outstanding stock of Parker
Broadcasting Company ("Parker"), the owner and licensee of radio station KYXY-FM
in San Diego, California (the "San Diego Acquisition"), for approximately
$17,424,000 in cash (including transaction costs of $831,000 of which $175,000
was paid to Sillerman Communications Management Company ("SCMC") for providing
or paying for legal services necessary in negotiating and documenting the
transaction), including a $650,000 three year covenant not to compete with the
former owners. In addition, costs of $1,380,000 related to the integration of
KYXY-FM and reformatting of its duopoly partner, KPLN-FM, were included in
depreciation, amortization, duopoly integration costs and acquisition related
costs in 1995. The Company had provided programming to and sold advertising on
behalf of KYXY-FM pursuant to an LMA since January 18, 1995.
For financial statement purposes, all of the acquisitions described above
were accounted for using the purchase method, with the aggregate purchase price
allocated to the tangible and identifiable intangible assets based upon current
estimated fair market values. Certain of the recent transactions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included in the accompanying consolidated financial statements. The
following unaudited pro forma summary presents the consolidated results of
operations, excluding operations to be distributed to shareholders, for the
years ended December 31, 1997, 1996 and 1995 as if the acquisitions for any
given year and the subsequent year had occurred at the beginning of such year
after giving effect to certain adjustments, including amortization of goodwill
and interest expense on the acquisition debt. These pro forma results have been
F-295
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made as of that date or of
results which may occur in the future.
PRO FORMA
YEAR ENDED DECEMBER 31
IN THOUSANDS EXCEPT PER SHARE DATA
(UNAUDITED)
Pursuant to separate agreements, the Company has agreed to: (i) exchange
four radio stations owned by the Company and located on Long Island, New York,
for $11 million cash and two radio stations operating in Jacksonville, Florida,
where the Company currently owns four stations, (the "Chancellor Exchange");
(ii) acquire three radio stations operating in Nashville, Tennessee, where the
Company currently owns two radio stations, for $35 million (the "Nashville
Acquisition"); and (iii) sell six stations in Jackson, Mississippi and two
stations in Biloxi, Mississippi for $66.0 million in cash (the "Jackson and
Biloxi Disposition"). The assets related to the Jackson and Biloxi Deposition
are classified as assets under contract for sale in the accompanying balance
sheet as of December 31, 1997. The Chancellor Exchange and the Nashville
Acquisition are collectively referred to as the "Pending Acquisition." The
Jackson and Biloxi Disposition is referred to herein as the "Pending
Disposition." The U.S. Department of Justice, Antitrust Division (the "DOJ") has
brought suit alleging that the Chancellor Exchange is likely to reduce
competition. The complaint requests permanent injunctive relief preventing the
consummation of the acquisition of the Long Island stations by Chancellor Media
Corporation ("Chancellor"). The Company, Chancellor, an affiliate of Buyer, and
DOJ are currently involved in settlement discussions. If successfully concluded,
these settlement discussions will resolve all competitive issues raised by DOJ
and will terminate all investigations or litigation by DOJ with respect to the
Company, the Merger, the Pending Acquisitions and the Pending Disposition. The
Company cannot, however, be certain that the settlement discussions will be
successful. If the Company fails to reach an acceptable settlement agreement
with DOJ, the Company intends to defend the suit vigorously. At December 31,
1997, the Company had capitalized $1.7 million of costs related to the
acquisition of the Jacksonville radio stations. In the event the Chancellor
Exchange does not take place the Company will be required to write-off such
costs.
The aggregate proceeds to be received from these transactions, net of
acquisitions, is approximately $42 million. The Company has deposited $2.0
million in escrow to secure its obligations under these agreements. The Company
expects to record a pre-tax gain of approximately $20.0 million on the Jackson
and Biloxi Disposition. The Company does not expect to record a gain or loss on
the other transactions as the assets were recently acquired.
Concert Promotion Acquisitions. During 1997, the Company also acquired the
following concert promotion companies, which are expected to be contributed to
SFX Entertainment at the Spin-Off date.
In January 1997, the Company purchased Delsener/Slater for an aggregate
consideration of approximately $26.6 million, including $2.9 million for working
capital and the present value of deferred payments of $3.0 million to be paid,
without interest, over five years and $1.0 million to be paid, without interest,
over ten
F-296
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years (the "Delsener/Slater Acquisition"). The deferred payments are subject to
acceleration in certain circumstances.
In March 1997, Delsener/Slater consummated the acquisition of certain
companies which collectively own and operate the Meadows (the "Meadows
Acquisition") for $900,000 in cash, 250,838 shares of SFX Class A Common Stock
with a value of approximately $7.5 million and the assumption of approximately
$15.4 million of debt.
SFX Entertainment may assume the obligation to exercise an option held by
the Company to repurchase 250,838 shares of the Company's Class A Common Stock
for an aggregate purchase price of $8.3 million (the "Meadows Repurchase"). This
option was granted in connection with the acquisition of the Meadows Music
Theater. If the option were exercised by the Company, the exercise would result
in a reduction of working capital in connection with the Spin-Off by
approximately $8.3 million. If the option were not exercised, working capital
would decrease by approximately $10.5 million.
Also in March 1997, the Company, in partnership with Pavilion Partners,
entered into a twenty-two year lease to operate the PNC Bank Arts Center, a
10,800 seat complex located in Holmdel, New Jersey. The lease also granted
Pavilion Partners the right to expand the capacity to 17,500 prior to the 1998
season.
In June 1997, the Company acquired Sunshine Promotions for $53.9 million in
cash at closing, $2.0 million in cash payable over 5 years, 62,792 shares of
Class A Common Stock issued and issuable over a two year period with a value of
approximately $4.0 million and the assumption of approximately $1.6 million of
debt. The assets to be acquired include Deer Creek Music Center, a 21,000 seat
complex located in Indianapolis, Indiana, the Polaris Amphitheater, a 20,000
seat complex located in Columbus, Ohio and a 99 year lease to operate Murat
Centre, a 2,700 seat theater and 2,200 seat ballroom, located in Indianapolis,
Indiana.
For financial statement purposes, all of the concert acquisitions described
above were accounted for using the purchase method, with the aggregate purchase
price allocated to the tangible and identifiable intangible assets based upon
current estimated fair market values. The concert acquisitions are based on
preliminary estimates of the fair value of the net assets acquired and subject
to final adjustment. The assets and liabilities of these acquisitions and the
results of their operations for the period from the date of acquisition have
been included as net assets and income from operations to be distributed to
shareholders in the accompanying consolidated financial statements.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts for
transactions have been eliminated in consolidation. The Company accounts for
investments in which it has a 50% or less and 20% or greater ownership interest
under the equity method.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of less than three
months are classified as cash equivalents. The carrying amounts of cash and cash
equivalents reported in the balance sheet approximate their fair values.
F-297
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
provided on the straight-line method over the estimated useful lives of the
assets as follows:
Buildings and improvements.................................. 7-20 years
Broadcasting equipment and other............................ 5-7 years
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful lives of the assets. Amortization of assets recorded under
capital leases is included in depreciation expense.
Amortization of Intangible Assets
Broadcast licenses and goodwill are amortized using the straight-line
method over 40 years. Other intangible assets are being amortized using the
straight-line method over their estimated remaining useful lives from 1 to 10
years. Debt issuance costs and discounts are being amortized by the
straight-line method, which closely approximates the interest method, over the
life of the respective debt. Concert promotion goodwill was amortized using the
straight-line method over 15 years.
In 1996 the Company adopted FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets". Under FAS No. 121, the carrying values of intangible assets
are reviewed if the facts and circumstances suggest that they may be impaired.
If this review indicates the intangible assets will not be recoverable as
determined based on the undiscounted cash flows of the Company over the
remaining amortization period, the Company's carrying value of the intangible
assets will be reduced to their estimated fair values, if lower than the
carrying value. The impact of this adoption had no effect on the consolidated
financial statements.
Payable to Former National Sales Representative
The Company is obligated to pay $23 million to a national advertising
representative company in 1998 in connection with switching its affiliations.
The amount is classified in the current liabilities section of the consolidated
balance sheets at December 31, 1997.
Revenue Recognition
The Company's primary source of revenue is the sale of airtime to
advertisers. Revenue from the sale of airtime is recorded when the
advertisements are broadcast.
Barter Transactions
The Company barters unsold advertising time for products and services. Such
transactions are recorded at the estimated fair value of the products or
services received or used. Barter revenue is recorded when commercials are
broadcast and related expenses are recorded when the product or service is
received or used. For the years ended December 31, 1997, 1996 and 1995, the
Company recorded barter revenue of $11,995,000, $8,029,000 and $4,961,000
respectively, and expenses of $11,281,000, $7,476,000 and $4,811,000
respectively.
F-298
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Local Marketing Agreements/Joint Sales Agreements
From time to time, the Company enters into LMAs and JSAs with respect to
radio stations owned by third parties including radio stations which it intends
to acquire. Terms of the agreements generally require the Company to pay a
monthly fee in exchange for the right to provide station programming and sell
related advertising time in the case of an LMA or sell advertising in the case
of a JSA. The agreements terminate upon the acquisition of the stations. It is
the Company's policy to expense the fees as incurred as a component of operating
income (loss). The Company accounts for payments received pursuant to LMAs of
owned stations as net revenue to the extent that the payment received represents
a reimbursement of the Company's ownership costs.
Advertising Costs
Advertising costs are expensed as incurred and approximated $9,789,000,
$5,068,000 and $3,336,000 in 1997, 1996 and 1995, respectively.
Concentration of Credit Risk
The Company's revenue and accounts receivable primarily relate to the sale
of advertising within the radio stations' broadcast areas. Credit is extended
based on an evaluation of a customer's financial condition, and generally
collateral is not required. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
New Accounting Pronouncement
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" during
the first quarter of 1998. The Company has no items of other comprehensive
income as described in SFAS No. 130. Therefore, net income is equal to
comprehensive income for all periods presented.
Reclassification
Certain amounts in 1995 and 1996 have been reclassified to conform to the
1997 presentation.
Interim Financial Information
Information as of March 31, 1998 and for the three months ended March 31,
1998 and 1997 is unaudited. The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the unaudited interim financial statements contain
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the Company, for the periods presented. The
F-299
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations for the three month period are not necessarily indicative
of the results of operations for the full year.
NOTE 5 -- DEBT AND SUBORDINATED NOTES
Debt consists of the following at December 31, 1997 and 1996 (in
thousands):
The aggregate contractual maturities of long-term debt for the years ending
December 31 are as follows: 1998 -- $509,000; 1999 -- $200,000;
2000 -- $766,000; 2001 -- $57,000,000; 2002 -- $72,000,000;
thereafter -- $634,000,000.
In May 1996, the Company completed the placement of $450.0 million in
aggregate principal amount of its 10.75% Senior Subordinated Notes due 2006 (the
"Note Offering"). Interest is payable semi-annually on May 15 and November 15.
The notes are unsecured obligations of the Company and are subordinate to all
senior debt of the Company. The Company incurred issuance costs totaling $15.3
million related to the Note Offering which were recorded as deferred financing
costs. In addition to the Note Offering, the Company sold in a private placement
2,990,000 shares of Series D Preferred Stock aggregating $149.5 million in
liquidation preference (the "Preferred Stock Offering").
Concurrently with the closings of the Note Offering and the Preferred Stock
Offering, the Company completed a tender offer (the "Tender Offer") and related
consent solicitation with respect to its 11.375% Senior Subordinated Notes due
2000 (the "Old Notes"). SFX repurchased approximately $79.4 million in principal
amount of the $80.0 million in principal amount of the Old Notes outstanding in
the Tender Offer. The Company also entered into a supplemental indenture
amending the terms of the indenture pursuant to which the remaining Old Notes
were issued.
In March 1995, the Company entered into a $50.0 million senior credit
facility (the "Old Credit Facility") pursuant to which the Company made
borrowings to finance the Charlotte Acquisition and certain working capital
needs. On May 31, 1996 all amounts outstanding under the Old Credit Facility
were repaid with a portion of the proceeds of the Note Offering and the
Preferred Stock Offering.
In connection with the repurchase of the Old Notes and the repayment of the
Old Credit Facility, the Company recorded an extraordinary loss on debt
retirement of approximately $15.2 million to reflect the cost of prepayment
premiums and the write-off of debt issuance costs.
On November 22, 1996, the Company entered into a new credit facility, as
amended (the "New Credit Agreement"), a senior revolving credit facility
providing for borrowings of up to $400 million. Borrowings under the New Credit
Agreement may be used to finance permitted acquisitions, for working capital and
general corporate purposes, and for letters of credit up to $20.0 million. The
credit facility will be reduced by $18 million on a quarterly basis commencing
March 31, 2000 to December 31, 2004 and two final payments of $20 million will
be paid on March 31, 2005 and June 30, 2005. Interest on the funds borrowed
under the New Credit Agreement is based on a floating rate selected by the
Company of either (i) the higher of (a) the Bank of New York's prime rate and
(b) the federal funds rate plus 0.5%, plus a margin which varies from 0.25% to
F-300
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.5%, based on the Company's then-current leverage ratio, or (ii) the LIBOR rate
plus a margin which varies from 1.875% to 2.75%, based on the Company's
then-current leverage ratio. The Company must prepay certain outstanding
borrowings in advance of their scheduled due dates in certain circumstances,
including but not limited to achieving certain cash flow levels or receiving
certain proceeds from asset disposition as defined. The Company must also pay
annual commitment fees of 0.5% of the unutilized total commitments under the New
Credit Agreement. The Company's obligations under the New Credit Agreement are
secured by substantially all of its assets, including property, stock of
subsidiaries and accounts receivable, and are guaranteed by the Company's
subsidiaries. At December 31, 1997, the weighted average interest rate was
8.19%.
The New Credit Agreement and the indentures related to the Company's
subordinated notes contain covenants that impose certain restrictions on the
Company, such as total leverage, pro forma debt service and pro forma interest
expense ratios.
The fair value of the Company's senior subordinated notes was $493,313,000
at December 31, 1997 based upon the quoted market price. The book value of the
Company's senior credit facility and other debt approximates fair value, which
was estimated using discounted cash flow analysis based on the Company's
incremental borrowing rate for similar types of borrowing arrangements.
The Company's 10.75% senior subordinated notes and 11.375% senior
subordinated notes are guaranteed by every direct and indirect subsidiary of the
Company. There are no non-guarantor subsidiaries. The guarantees by the
guarantor subsidiaries are full, unconditional, and joint and several. All of
the guarantor subsidiaries are wholly-owned. The Company is a holding company
with no assets, liabilities or operations other than its investment in its
subsidiaries. Separate financial statements of each guarantor have not been
included as management has determined that they are not material to investors.
NOTE 6 -- REDEEMABLE PREFERRED STOCK
Preferred stock consists of the following at December 31, 1997 and 1996
(dollars in thousands):
1997 1996
-------- --------
Preferred Stock of the Company, $.01 par value, 10,012,000
shares authorized:
Series B Redeemable, 0 and 1,000 shares issued and
outstanding in 1997 and 1996, respectively................ $ -- $ 917
Series C Redeemable, 2,000 shares issued and outstanding in
1997 and 1996, includes accreted dividends of $197 in 1997
and $108 in 1996.......................................... 1,725 1,636
Series D Cumulative Convertible Exchangeable Preferred
Stock, 2,990,000 shares issued and outstanding, includes
accreted issuance costs of $878 in 1997................... 144,324 143,446
Series E Cumulative Exchangeable Preferred Stock, 2,250,000
shares issued and outstanding, net of issuance costs,
includes accreted issuance costs of $951 in 1997.......... 215,947 --
-------- --------
$361,996 $145,999
======== ========
The Series B Redeemable Preferred Stock which was non-voting and not
entitled to receive dividends was redeemed in October 1997 at the liquidation
value of $1,000 per share.
The shares of Series C Redeemable Preferred Stock receive cumulative
dividends equal to 6% per annum paid by the Company in arrears on a quarterly
basis. The shares are non-voting and are redeemable by the Company after
September 15, 1998 or by the holder after September 15, 2000, at the liquidation
value of $1,000 per share. The Series C Redeemable Preferred Stock ranks senior
to other preferred stock and to the Company's common stock as to dividends and
liquidation rights.
F-301
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The shares of Series D Cumulative Convertible Exchangeable Preferred Stock
(the "Series D Preferred Stock") receive cumulative dividends equal to 6 1/2%
per annum ($0.8125 per share) which are paid by the Company on a quarterly
basis. The shares of Series D Preferred Stock are redeemable at the option of
the Company on or after June 1, 1999, in whole or in part, at redemption prices
ranging from 104.5% in 1999 to 100.0% in 2006, plus accrued and unpaid dividends
to the redemption date. The Series D Preferred Stock is not subject to any
scheduled mandatory redemption prior to its maturity. The Series D Preferred
Stock will mature on May 31, 2007.
The Series D Preferred Stock is convertible at the option of the holder
into shares of Class A Common Stock of the Company at any time prior to maturity
at a conversion price of $45.51 per share (equivalent to a conversion rate of
1.0987 shares per $50 in Liquidation Preference of Series D Preferred Stock),
subject to adjustment in certain events. The Series D Preferred Stock is
exchangeable in full but not in part, at the Company's option on any dividend
payment date, for the Company's 6 1/2% Convertible Subordinated Exchange Notes
due 2007.
The Series D Preferred Stock ranks senior to the Company's common stock as
to dividends and liquidation rights.
The shares of Series E Cumulative Exchangeable Preferred Stock (the "Series
E Preferred Stock") receive cumulative dividends equal to the rate of 12 5/8%
per annum which are paid by the Company on January 15 and July 15 of each year.
Dividends may be paid, at the Company's option, through January 15, 2002, in
cash or additional shares of Series E Preferred Stock. Subject to certain
condition, the shares of the Series E Preferred Stock are exchangeable in whole
or in part on a pro rata basis, at the option of the Company, on any dividend
payment date, for the Company's 12 5/8% Senior Subordinated Exchangeable
Debentures due 2006. The Company is required, subject to certain conditions, to
redeem all of the Series E Preferred Stock outstanding on October 31, 2006. The
semi-annual dividend payable on January 15, 1998 was paid in additional shares
of preferred stock.
NOTE 7 -- SHAREHOLDER'S EQUITY
Common Stock
The holders of Class A Common Stock are entitled to one vote per share and
the holders of Class B Common Stock are entitled to ten votes per share on all
matters to be voted on by stockholders, except (i) for the election of
directors, (ii) with respect to any "going private" transaction between the
Company and its Chairman, or any of his affiliates, and (iii) as otherwise
provided by law. The holders of Class A and Class B Common Stock share ratably
in all dividends and other distributions. As of December 31, 1997, 1,047,937
shares of Class A Common Stock, authorized but unissued, are reserved for
conversion of the Class B Common Stock. Shares of the Company's Class B Common
Stock convert on a share per share basis into the same number of Class A Common
Stock under certain circumstances.
In December 1995, 16,784 shares of non-voting Class C Common Stock were
repurchased and retired by the Company for $459,000. In May 1996, 26,318 shares
of Class A common Stock and 143,874 shares of Class B Common Stock were
repurchased from the Company's former President. In July 1997, the Company
repurchased 3,667 shares of Class A Common for $111,000. In addition, in
September 1997, the Company repurchased 460 shares of Class A Common Stock for
$19,000.
In July 1995, the Company completed an offering of 1,725,000 shares of its
Class A Common Stock for $24.50 per share. The net proceeds of the offering were
$39,166,000 after underwriting discounts, commissions and other costs of the
offering. The net proceeds were utilized to repay senior indebtedness of
$21,500,000 and to fund the Dallas Acquisition and a portion of the Charlotte
Acquisition.
F-302
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Issued in MMR Merger
The following MMR warrants and options issued and outstanding at the date
of the merger were assumed by the Company and are now convertible into SFX
shares:
NUMBER MMR NUMBER SFX
OF MMR EXERCISE OF SFX EXERCISE
SECURITIES SHARES PRICE SECURITIES PRICE
---------- ------- ------------ ---------- -------------
Underwriters Warrants exercisable
through July 22, 1998................ 125,000 $9.10 37,288 $30.51
Class B Warrants exercisable through
March 22, 1999....................... 749,460 $11.50 217,162 $38.55
Unit Purchase Options exercisable
through March 22, 1999 (entitle the
holder to purchase one share of MMR
Common Stock, one MMR Class A Warrant
and one MMR Class B Warrant)......... 160,000 $7.75-$11.50 47,728 $25.98-$38.55
Stock options exercisable at various
dates through November 22, 2006...... 305,000 $5.00-$10.50 90,982 $16.76-$35.20
Warrants issued to Huff Alternative
Income Fund, L.P. exercisable through
March 31, 2005....................... 728,000 $7.75 223,564 $25.98
Sillerman Options...................... 10,000 $2.50 2,983 $8.38
The former MMR warrants and options are exercisable for that number of
shares of the Company's Class A Common Stock equal to the product of the number
of MMR shares covered by the security times 0.2983 and the per share exercise
price for the share of the Company's Class A Common Stock issuable upon the
exercise of each warrant and option is equal the quotient determined by dividing
the exercise price per share of the MMR shares specified for such security by
0.2983.
During 1997, certain holders of the former MMR securities exercised 95,874,
215,344, 153,445, and 142,001 of Underwriters Warrants, Class B Warrants, Unit
Purchase Options and Stock Options, respectively, of the securities describe
above. The warrants issued to the Huff Alternative Income Fund, L.P. were
exercised through election of cashless exercise provisions whereby the Company
issued 165,023 shares of the Company's Class A Common Stock.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to employees" ("APB25") and related
interpretations in accounting for its employee stock options, as opposed to the
fair value accounting provided for under FAS Statement No. 123, "Accounting for
Stock-Based Compensation."
Under stock option plans adopted annually since 1993, stock options to
acquire Class A Common Stock have been granted to certain officers, key
employees and other key individuals who perform services for the Company.
Options granted under these plans are generally granted at option prices equal
to the fair market value of the Class A Common Stock on the date of grant. As
such, under APB25, no expense is recorded in the statement of operations. Terms
of the options, determined by the Company, provided that the maximum term of
each options shall not exceed ten years and the options become fully exercisable
within five years of continued employment with the exception of certain options
granted to executives which were fully vested upon issuance.
F-303
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Merger, the Board has approved that all outstanding
options will vest immediately upon the date of such Merger.
At December 31, 1997, options outstanding had an average exercise price of
$22.04 and expiration dates ranging from December 1, 2003 to April 15, 2007. The
table below does not include the MMR options described above.
1997 1996 1995
------------- ------------- --------------
Options outstanding at beginning of
year................................. 910,000 748,000 500,000
Option price........................... $13.00-$33.75 $13.00-$21.25 $13.00-$13.50
Options granted........................ 420,000 349,000 248,000
Options price.......................... $28.00 $27.25-$33.75 $21.25
Options exercised...................... 726,050 -- --
Option price........................... $13.00-$33.75 -- --
Options repurchased.................... -- 187,000 --
Option price........................... -- $13.00-$21.25
Options expired or canceled............ -- -- --
Options outstanding at end of year..... 603,950 910,000 748,000
Option price........................... $13.00-$28.75 $13.00-$33.75 $13.00-$21.25
Options exercisable at end of year..... 439,750 461,200 153,000
NOTE 8 -- INCOME TAXES
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 is summarized in thousands as follows:
The Company files a consolidated tax return for federal income tax
purposes. As a result of current losses, no federal tax provision was recorded
for the year ended December 31, 1997 and 1996. The current income tax expense
recorded during 1997 and 1996 is a result of current state and local income
taxes in certain states where subsidiaries file separate tax returns. Deferred
state tax benefit was recognized in 1997 and 1996 attributable to the
disposition of stations acquired in transactions in which associated deferred
tax liabilities were recorded in purchase accounting. As a result of current
losses and the deferred benefit associated with the losses, no current or
deferred expense or benefit was recorded for the year ended December 31, 1995.
At December 31, 1997, the Company had total net operating loss
carryforwards of approximately $69,000,000 that will expire from 2003 through
2012, including net operating losses of acquired subsidiaries. Due to ownership
changes related to the acquisition of subsidiaries, the utilization of
approximately
F-304
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$15,300,000 of which losses is subject to various limitations. The future use of
remaining net operating loss carryforwards may be impacted and subject to
additional limitations as a result of the Merger.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities as of December
31, 1997 and 1996 are as follows (in thousands):
1997 1996
--------- ---------
Deferred Tax Assets:
Accounts receivable......................................... $ 860 $ 563
Net operating loss carryforwards............................ 23,965 12,044
Management service contract................................. 2,356 2,128
Other reserves.............................................. 113 646
National sales representative contract settlement........... 8,740 --
Accrued bonuses and other compensation...................... 1,563 997
--------- ---------
Total deferred tax assets................................... 37,597 16,378
Valuation allowance......................................... (21,876) (5,623)
--------- ---------
Net Deferred Tax Assets................................... 15,721 10,755
Deferred Tax Liabilities:
Property, plant and equipment............................... (684) (372)
Intangible assets........................................... (117,718) (101,658)
Other....................................................... -- (77)
--------- ---------
Total Deferred Tax Liabilities............................ (118,402) (102,107)
--------- ---------
Net Deferred Tax Liabilities.............................. $(102,681) $ (91,352)
========= =========
The acquisition of radio station WWYZ resulted in the recognition of
deferred tax liabilities of approximately $10 million under the purchase method
of accounting. The amounts were based upon the excess of the financial statement
basis over the tax basis in assets, primarily intangibles.
The 1997, 1996 and 1995 effective tax rate varied from the statutory
federal income tax rate as follows (in thousands):
1997 1996 1995
-------- -------- --------
Income taxes at the statutory rate................. $ (8,488) $(16,924) $ (1,495)
Effect of non-recurring and unusual charges........ 6,781 6,875 --
Valuation allowance................................ 13,977 9,859 1,434
Effect of nondeductible amortization of
intangibles...................................... 295 264 198
Nonqualified stock options......................... (12,380) -- --
State and local income taxes (net of federal
benefit)......................................... 535 317 (145)
Other.............................................. 90 89 8
-------- -------- --------
Total.................................... $ 810 $ 480 $ --
======== ======== ========
NOTE 9 -- RELATED PARTY TRANSACTIONS
Prior to April 1996, SCMC, where Robert F.X. Sillerman, the Company's
Executive Chairman, serves as Chairman of the Board of Directors and Chief
Executive Officer, had been engaged by the Company from
F-305
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
time to time for advisory services with respect to specific transactions. In
April 1996, the Company and SCMC entered into the SCMC Termination Agreement,
pursuant to which SCMC assigned to the Company its rights to provide services
to, and receive fees payable by each of, MMR and Triathlon in respect of such
consulting and marketing services to be performed on behalf of such companies,
except for fees related to certain transactions pending at the date of such
agreement. In addition, the Company and SCMC terminated the arrangement pursuant
to which SCMC performed financial consulting services for the Company. Upon
consummation of the MMR Merger, SCMC's agreement with MMR was terminated. Prior
to consummation of the MMR Merger, MMR paid an annual fee of $500,000 to SCMC
and Triathlon paid SCMC an annual fee of $300,000 (which increased to $500,000
effective January 1, 1997). In addition, Triathlon has agreed to advance to SCMC
an amount of $500,000 per year in connection with transaction-related services
to be rendered by SCMC. However, if the agreement between SCMC and Triathlon is
terminated or if an unaffiliated person acquires a majority of the capital stock
of Triathlon the unearned fees must be repaid. Pursuant to the SCMC Termination
Agreement, the Company has agreed to continue to provide consulting and
marketing services to Triathlon until the expiration of their agreement on June
1, 2005, and not to perform any consulting or investment banking services for
any person or entity other than Triathlon in the radio broadcasting industry or
in any business which uses technology for the audio transmission of information
or entertainment. In consideration of the foregoing agreements, the Company
issued to SCMC warrants to purchase up to 600,000 shares of Class A Common Stock
at an exercise price, subject to adjustment, of $33.75 (the market price at the
time the financial consulting arrangement was terminated). The Company also
forgave a $2.0 million loan made by the Company to SCMC, plus accrued and unpaid
interest thereon. Pursuant to such agreement, the Chairman has agreed with the
Company that he will supervise, subject to the direction of the Board of
Directors, the performance of the financial consulting and other services
previously performed by SCMC for the Company. During 1996, the Company received
fees of $292,000 from MMR and $511,000 from Triathlon. During 1997, the Company
received fees of $1,794,000 from Triathlon. In connection with this agreement,
the Company had a $44,000 receivable from Triathlon at December 31, 1997.
Pursuant to the Merger, the Company will transfer the Triathlon consulting
contract to SFX Entertainment. Triathlon has previously announced that it is
exploring ways of maximizing stockholder value, including possible sale to a
third party. If Triathlon were acquired by a third party, the agreement might
not continue for the remainder of its term.
In 1996, the Company paid to SCMC advisory fees of $4.0 million in
connection with the Liberty Acquisition, the Prism Acquisition, the Greenville
Acquisition, the Jackson Acquisitions, the Greensboro Acquisition and the
Raleigh-Greensboro Acquisition. In addition, the Company paid SCMC, on behalf of
MMR, a non-refundable fee of $2.0 million for investment banking services
provided to MMR in connection with the MMR Merger.
No pending transactions, as described in Note 3, predate the SCMC
Termination Agreement, and therefore no fees are payable to SCMC.
Prior to June 1996, the Company held a non-recourse note receivable from
the Company's former President in the amount of $2,000,000 which was secured by
133,333 shares of Class B Common Stock. The note bore interest at 6% per annum.
Interest income of $60,000 and $120,000 was accrued in 1996 and 1995 on the
loan, respectively. The loan and interest accrued were forgiven in June 1996
pursuant to an agreement with the former President and are included in
non-recurring and unusual charges.
In January 1995, the Company paid a $1,000,000 fee to SCMC in connection
with the transfer of shares of the Company's Class C Common Stock.
During the last quarter of 1996, the Company consolidated all of its
corporate office functions in New York. Prior to such time, the Company had an
agreement with the Chairman related to the maintenance of the Company's New York
Office whereby the Company reimbursed SCMC for certain office expenses and
F-306
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
salaries for certain employees of SCMC who provided services on behalf of the
Company. In addition certain of the Company's employees performed certain
services for other entities affiliated with SCMC. In connection with SCMC
Termination Agreement and the consolidation of the Company's Corporate Office in
New York, SCMC employees who provided services on behalf of the Company became
employees of the Company. Total reimbursements paid to SCMC for office expenses
and salaries totaled approximately $1,082,000 and $530,000 for the years ended
December 31, 1996 and 1995. The reimbursements paid to SCMC in 1996 included
$292,000 and $261,000 of fees paid by MMR and Triathlon, respectively, directly
to SCMC following the effective date of the SCMC Termination Agreement. The
timing of these payments during the year were such that the Company had advanced
amounts to SCMC of up to $230,000 during the period. As of December 31, 1996 and
1997, there are no amounts due to or from SCMC.
The transactions above were not negotiated on an arms-length basis.
Accordingly, each transaction was approved by the Company's Board of Directors,
including the Company's independent directors, in accordance with the provisions
relating to affiliate transactions in the Company's by-laws, bank agreements and
Indenture, which provisions require a determination as to the fairness of the
transactions to the Company.
The Company's Executive Vice President, General Counsel and Director is Of
Counsel to the law firm of Baker & McKenzie. Baker & McKenzie serves as counsel
to the Company in certain matters. Baker & McKenzie compensates the executive
based, in part, on the fees it receives from providing legal services to the
Company and other clients originated by the executive. The Company paid Baker &
McKenzie $6,813,000, $4,886,000 and $793,000 for legal services during 1997,
1996 and 1995, respectively. During February 1998, the Company was reimbursed by
SFX Entertainment for approximately $2,948,000 of legal fees related to concert
acquisitions and the Spin-Off. As of December 31, 1997 and 1996, the Company
accrued Baker & McKenzie legal fees of approximately $4,782,000 and $1,550,000,
respectively.
NOTE 10 -- NON-RECURRING AND UNUSUAL CHARGES, INCLUDING ADJUSTMENTS TO BROADCAST
RIGHTS AGREEMENT
Audited:
The Company recorded non-recurring and unusual charges related to the
Merger of SFX Broadcasting and the Spin-Off of SFX Entertainment of $20,174,000
in 1997 which consisted primarily of (i) $12,140,000 related to bonuses paid to
officers of the Company (ii) a write-off of a $2,500,000 loan made to the
Company's Executive Chairman (iii) $1,713,000 relating to an increase in value
of certain Stock Appreciation Rights and (iv) $3,821,000 of other expenses,
primarily legal, accounting and regulatory fees.
The Company recorded non-recurring and unusual charges of $28,994,000 in
1996 which consisted primarily of payments in excess of the fair value of stock
repurchased totaling $12,461,000 to the company's former President and the
reserve by the Company of $2,330,000 relating to the loan and accrued interest
to the Company's former President, $5,586,000 related to the SCMC Termination
Agreement (Note 9), $4,575,000 for the repurchase of options and rights to
receive options held by the Chief Operating Officer, and a charge of $1,600,000
related to the termination of the Company's contractual four-year broadcast
rights of Texas Rangers baseball and an adjustment in the value of the contract
for the 1996 season. In 1995, the Company recorded a $5 million charge related
to the write down in value of the Company's Texas Rangers broadcast rights.
Unaudited:
In the first quarter of 1998, the Company recorded non-recurring and
unusual charges of $25.0 million which consisted primarily of (i) $4.2 million
of compensation expense related to options issued, (ii) $550,000 relating to the
settlement of a lawsuit, (iii) $489,000 relating to the increase in value of
certain SARs, (iv) $16.6 million relating to the consent solicitations from the
holders of its Senior Subordinated Notes due
F-307
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2006 and the holders of its 12 5/8% Series E Preferred Stock in connection with
the Spin-Off and (v) $3.2 million of expenses, primarily legal, accounting and
regulatory fees associated with the pending Merger and the consent solicitations
in connection with the Spin-Off.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company has entered into various operating leases, broadcast rights
agreements and employment agreements. Total rent expense was $5,403,000,
$2,903,000 and $1,506,000 for the years ending December 31, 1997, 1996 and 1995,
respectively. The Company has entered into employment agreements with certain
officers and other key employees. Expenses under the contracts approximated
$19,748,000 for the year ended December 31, 1997. Future minimum payments in the
aggregate for all noncancelable operating leases including broadcast rights
agreements and employment agreements with initial terms of one year or more
consist of the following at December 31, 1997 (in thousands):
The future minimum payments pursuant to operating leases does not include
the New York offices as theses facilities will be transferred to SFX
Entertainment.
Future minimum payments in the aggregate for all noncancelable capital
leases with initial terms of one year or more consist of the following at
December 31, 1997 (in thousands)
CAPITAL
LEASES
-------
1998........................................................ $ 124
1999........................................................ 86
2000........................................................ 43
2001........................................................ 14
2002 and thereafter......................................... --
-----
Total minimum lease payments................................ 267
Less: amount representing interest.......................... (40)
-----
Present value of future minimum lease payments.............. 227
Less: current portion....................................... (101)
-----
Long-term capital lease obligations......................... $ 126
=====
The Company is the subject of various claims and litigation principally in
the normal course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse impact on the
consolidated financial statements. SFX Entertainment has committed to certain
renovation and construction projects totaling $35.5 million.
F-308
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan in which most of
its employees were eligible to participate. The Plan presently provides for
discretionary employer contributions. The Company made no contributions in 1997,
1996 or 1995.
NOTE 13 -- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1997 1996 1995
------- ------- -------
Cash paid during the year for:
Interest................................................ $65,184 $30,898 $12,903
Income taxes............................................ $ 1,059 $ 81 $ --
Supplemental schedule of noncash investing and financing activities:
Issuance of equity securities, including deferred equity security issuance, and
assumption of debt in connection with certain acquisitions (Note 3)
Agreements to pay future cash consideration in connection with certain
acquisitions (Note 3)
Exchange of radio stations (Note 3)
Issuance of warrants in connection with SCMC termination agreement (Note 9).
NOTE 14 -- SUBSEQUENT EVENTS
Radio Broadcasting. In January 1998, the Company sold one radio station
operating in Richmond, Virginia (the "Richmond Disposition") for $4.3 million.
Concert Promotion Acquisitions and Financing. In February and March 1998,
SFX Entertainment acquired the following live entertainment businesses which
were contributed to SFX Entertainment upon the Spin-Off.
PACE Entertainment Corporation ("PACE"), one of the largest diversified
producers and promoters of live entertainment in the United States, having what
SFX Entertainment believes to be the largest distribution network in the United
Sates in each of its music, theater and specialized motor sports businesses (the
"PACE Acquisition"), for total consideration of approximately $156,056,000. In
connection with the PACE Acquisition, SFX Entertainment acquired 100% of
Pavilion Partners, a partnership that owns interest in 10 venues ("Pavilion"),
through the PACE Acquisition and directly from PACE's various partners for
$90,627,000. The Company has guaranteed the performance of SFX Entertainment's
obligation to PACE until PACE is issued the SFX Entertainment stock it is
entitled to under the acquisition agreement.
The Contemporary Group ("Contemporary"), a fully-integrated live
entertainment and special event promoter and producer, venue owner and operator
and consumer marketer, for total consideration of approximately $101,402,000.
The Network Magazine Group ("Network Magazine"), a publisher of trade
magazines for the radio broadcasting industry, and SJS Entertainment ("SJS"), an
independent creator, producer and distributor of music-related radio
programming, services and research which it exchanges with radio broadcasters
for commercial air-time sold, in turn, to national network advertisers (the
"Network Acquisition"), for total consideration of approximately $66,784,000.
F-309
SFX BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BG Presents ("BGP"), one of the oldest promoters of, and owner-operators of
venues for, live entertainment in the United States, and a leading promoter in
the San Francisco Bay area (the "BGP Acquisition"), for total consideration of
approximately $80,327,000.
Concert/Southern Promotions ("Concert/Southern"), a promoter of live music
events in the Atlanta, Georgia metropolitan area (the "Concert/Southern
Acquisition"), for total consideration of approximately $16,600,000.
Westbury Music Fair, a theater located in Westbury, New York for aggregate
consideration of $3.0 million in cash and an agreement to issue 75,019 shares of
Class A Common Stock of SFX Entertainment.
On February 11, 1998, SFX Entertainment completed the private placement of
$350.0 million of 9 1/8% Senior Subordinated Notes (the "Notes") due 2008.
Interest is payable on the Notes on February 1 and August 1 of each year.
On February 26, 1998, SFX Entertainment executed a Credit and Guarantee
Agreement (the "Credit Agreement") which established a $300.0 million senior
secured credit facility comprised of (i) a $150.0 million eight-year term loan
(the "Term Loan") and (ii) a $150.0 million seven-year reducing revolving credit
facility. Borrowings under the Credit Agreement are secured by substantially all
of the assets of SFX Entertainment, including a pledge of the outstanding stock
of substantially all of its subsidiaries and guaranteed by all of SFX
Entertainment's subsidiaries. On February 27, 1998, SFX Entertainment borrowed
$150.0 million under the Term Loan. Together with the proceeds from the Notes,
the proceeds from the Term Loan were used to finance the 1998 acquisitions
discussed above.
Consent Solicitation. To facilitate the Spin-Off, SFX Entertainment's 1998
acquisitions and its financing thereof, the Company sought and obtained consents
from the holders of its Old Notes and the holders of its Senior Subordinate
Notes due 2006 and the holders of its 12 5/8% Series E Preferred Stock. In
connection with these consents, the Company modified certain covenants.
Management anticipates that the Company will be in compliance with these
covenants in the foreseeable future. Fees and expenses of approximately $18.0
million were incurred by the Company in connection with the consent
solicitations and were reimbursed by SFX Entertainment with the proceeds of the
SFX Entertainment Notes. Such charges are included in non-recurring and unusual
charges, including adjustments to broadcast rights agreement.
Legal Proceedings
On August 29, 1997, two lawsuits were commenced against the Company and its
directors which allege that the consideration to be paid as a result of the
Merger to the holders of the Company's Class A Common Stock is unfair and that
the individual defendants have breached their fiduciary duties.
On March 16, 1998, all of the parties entered into a Memorandum of
Understanding, pursuant to which they have reached an agreement providing for a
settlement of the action (the "Settlement"). The Settlement provides for the
Company to pay plaintiffs' counsel an aggregate of $950,000, including all fees
and expenses as approved by the court. The Company anticipates that a
significant portion of such payment will be funded by the Company's insurance.
The Settlement is conditioned on the (a) consummation of the Merger, (b)
completion of the confirmatory discovery and (iii) approval of the court.
F-310
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying combined statement of assets acquired as
of April 3, 1998 and the related combined statements of revenues and direct
operating expenses of KBIG-FM, KLDE-FM, and WBIX-FM (formerly WNSR-FM),
(collectively, the "Company"), for each of the three years ended December 31,
1997. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of assets acquired and
the combined statements of revenues and direct operating expenses are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying combined financial statements reflect the assets acquired
and the revenues and direct operating expenses attributable to the Company as
described in Note 1 and are not intended to be a complete presentation of the
assets or revenues and expenses of the Company.
In our opinion, the combined statement of assets acquired and statements of
revenues and direct operating expenses present fairly, in all material respects,
the assets described in Note 1 as of April 3, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the three years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-311
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
APRIL 3,
1998
--------
Property and equipment, net................................. $5,699
Broadcast licenses.......................................... --
------
$5,699
======
The accompanying notes are an integral part of the financial statements
F-312
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
COMBINED STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
Total revenue................................ $55,125 $55,286 $44,738 $ 9,870 $10,109
Less agency commissions...................... (9,252) (8,485) (6,290) (1,521) (1,398)
------- ------- ------- ------- -------
Net revenue........................ 45,873 46,801 38,448 8,349 8,711
------- ------- ------- ------- -------
Direct operating expenses:
Programming, technical and news............ 7,933 7,081 6,906 1,820 1,690
Sales and promotion........................ 15,720 13,187 10,536 3,294 2,293
Station general and administrative......... 4,981 5,437 5,064 1,754 1,674
Depreciation expense....................... 976 975 1,000 250 185
------- ------- ------- ------- -------
Total.............................. 29,610 26,680 23,506 7,118 5,842
------- ------- ------- ------- -------
Excess of net revenues over direct operating
expenses................................... $16,263 $20,121 $14,942 $ 1,231 $ 2,869
======= ======= ======= ======= =======
The accompanying notes are an integral part of the financial statements
F-313
KBIG-FM, KLDE-FM, AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements include the accounts of
KBIG-FM, KLDE-FM and WBIX-FM (formerly WNSR-FM), (collectively, the "Company").
The Company operates three commercial radio stations, KBIG-FM in Los Angeles,
KLDE-FM in Houston and WBIX-FM in New York. The Company is wholly owned by
Bonneville International Corporation. Bonneville Holding Company is the licensee
of the Company pursuant to certain licenses and authorizations issued by the
Federal Communications Commission.
On April 3, 1998, Bonneville International Corporation and Bonneville
Holding Company (together, "Bonneville") exchanged KBIG-FM, KLDE-FM and WBIX-FM
for Chancellor Media Corporation of Los Angeles ("CMCLA") stations WTOP-AM in
Washington, KZLA-FM in Los Angeles and WGMS-FM in Washington plus $63,000 in
cash under an asset exchange agreement. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction. CMCLA operated KBIG-FM and KDLE-FM
under time brokerage agreements from October 1, 1997 to April 3, 1998 and
WBIX-FM from October 10, 1997 to April 3, 1998. Revenues and direct operating
expenses of the Company included in the Combined Statements of Revenues and
Direct Operating Expenses and recognized by CMCLA in its Consolidated Statement
of Operations amounted to net revenue of approximately $9,959 and direct
operating expenses of approximately $4,229 for the period ended December 31,
1997 and net revenue of approximately $8,711 and direct operating expenses of
approximately $5,657 for the period ended March 31, 1998.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company. Significant intercompany balances and transactions have
been eliminated in combination.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on April 3, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense, income taxes or the LMA fees earned by
Bonneville pursuant to the time brokerage agreements.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Bonneville has not segregated
indirect corporate operating cost information or related assets and liabilities
for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
F-314
KBIG-FM, KLDE-FM AND WBIX-FM (FORMERLY WNSR-FM)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Bonneville has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim combined statements of
revenues and direct operating expenses for the three months ended March 31, 1998
and 1997, reflect all adjustments, consisting of only normal and recurring
items, which are necessary for a fair presentation of the results for the
interim period presented. The results for the interim periods are not
necessarily indicative of results to be expected for any other interim periods
or for the full year.
F-315
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation of Los Angeles:
We have audited the accompanying statement of assets acquired as of May 29,
1998 and the related statements of revenues and direct operating expenses of
KODA-FM, (the "Company"), for each of the two years ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets acquired and the
statements of revenues and direct operating expenses are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements reflect the assets acquired and the
revenues and direct operating expenses attributable to the Company as described
in Note 1 and are not intended to be a complete presentation of the assets or
revenues and expenses of the Company.
In our opinion, the statement of assets acquired and statements of revenues
and direct operating expenses present fairly, in all material respects, the
assets described in Note 1 as of May 29, 1998 and the revenues and direct
operating expenses as described in Note 1 for each of the two years ended
December 31, 1997 of the Company, in conformity with generally accepted
accounting principles.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
F-316
KODA-FM
STATEMENT OF ASSETS ACQUIRED
(DOLLARS IN THOUSANDS)
MAY 29,
1998
-------
Property and equipment, net................................. $391
Broadcast license........................................... --
----
$391
====
The accompanying notes are an integral part of the financial statements
F-317
KODA-FM
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------- ---------------
1996 1997 1997 1998
------- ------- ------ ------
(UNAUDITED)
Total revenue............................................ $18,950 $20,869 $4,440 $5,044
Less agency commissions.................................. (2,605) (2,889) (608) (691)
------- ------- ------ ------
Net revenue.................................... 16,345 17,980 3,832 4,353
------- ------- ------ ------
Direct operating expenses:
Programming, technical and news........................ 1,012 960 359 412
Sales and promotion.................................... 4,269 4,539 790 754
Station general and administrative..................... 2,125 2,036 529 465
Depreciation expense................................... 183 185 46 47
------- ------- ------ ------
Total.......................................... 7,589 7,720 1,724 1,678
------- ------- ------ ------
Excess of net revenues over direct operating expenses.... $ 8,756 $10,260 $2,108 $2,675
======= ======= ====== ======
The accompanying notes are an integral part of the financial statements
F-318
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements include the accounts of KODA-FM, (the
"Company"). The Company operates a commercial radio station, KODA-FM in Houston.
The Company is wholly owned by Capstar Broadcasting Corporation ("Capstar") and
formerly owned by SFX Broadcasting, Inc. ("SFX") prior to Capstar's acquisition
of SFX.
On May 29, 1998, Capstar exchanged KODA-FM for Chancellor Media Corporation
of Los Angeles ("CMCLA") stations WAPE-FM and WFYV-FM in Jacksonville under an
asset exchange agreement. As part of the transaction, CMCLA also paid cash of
$90,250 to the owners of KVET-AM, KVET-FM and KASE-FM, who simultaneously
transferred such stations to Capstar. No liabilities were assumed by CMCLA in
the transaction. The accompanying financial statements do not reflect any
adjustments relating to this transaction.
The accompanying statement of assets acquired and statements of revenues
and direct operating expenses have been prepared in accordance with generally
accepted accounting principles and were derived from the historical accounting
records of the Company.
The statement of assets acquired includes the assets of the Company, which
were acquired by Chancellor Media Corporation of Los Angeles on May 29, 1998.
This statement does not include cash, accounts receivable, prepaid or other
assets, accounts payable, accrued expenses or other borrowings.
The statements of revenues and direct operating expenses include the
revenues and direct expenses directly attributable to each station. The
statements do not include amortization expense, corporate general and
administrative costs, interest expense or income taxes.
Complete financial statements, including historical balance sheets and
statements of cash flows, were not prepared as Capstar and SFX had not
segregated indirect corporate operating cost information or related assets and
liabilities for the Company in its accounting records.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
which approximates the appraised value of the assets at the date of exchange.
The Company continually evaluates the propriety of the carrying amount of
property and equipment to determine whether current events or circumstances
warrant adjustment to the carrying value. Repairs and maintenance costs are
charged to expense when incurred.
(b) Broadcast Licenses
Broadcast licenses are stated at zero as Capstar has not segregated the
cost basis of such licenses to the station level. The Company continually
evaluates the propriety of the carrying amount of broadcast licenses to
determine whether current events or circumstances warrant adjustment to the
carrying value.
(c) Revenue Recognition
Revenue is derived primarily from the sale of commercial announcements to
local and national advertisers. Revenue is recognized as commercials are
broadcast.
F-319
KODA-FM
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(e) Unaudited Interim Financial Information
In the opinion of management, the unaudited interim statements of revenues
and direct operating expenses for the three months ended March 31, 1998 and
1997, reflect all adjustments, consisting of only normal and recurring items,
which are necessary for a fair presentation of the results for the interim
period presented. The results for the interim periods are not necessarily
indicative of results to be expected for any other interim periods or for the
full year.
F-320
ANNEX I
AGREEMENT AND PLAN OF MERGER
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
RANGER EQUITY HOLDINGS CORPORATION
DATED AS OF JULY 7, 1998
TABLE OF CONTENTS
Article I
The Merger
1.1 The Merger....................... I-1
1.2 Closing.......................... I-1
1.3 Effective Time................... I-2
1.4 Certificate of Incorporation..... I-2
1.5 Bylaws........................... I-2
1.6 Directors........................ I-2
1.7 Officers......................... I-2
1.8 Effect on LIN Capital Stock...... I-2
(a) Outstanding LIN Common
Stock........................ I-2
(b) Treasury Shares.............. I-3
(c) Impact of Stock Splits,
etc. ............................ I-3
1.9 Effect on Chancellor Capital
Stock............................ I-3
1.10 Exchange of Certificates......... I-3
(a) Paying Agent................. I-3
(b) Exchange Procedures.......... I-3
(c) Letter of Transmittal........ I-4
(d) Distributions with Respect to
Unexchanged Shares........... I-4
(e) No Further Ownership Rights
in LIN Common Stock.............. I-4
(f) No Fractional Shares......... I-5
(g) Termination of Payment
Fund............................. I-5
(h) No Liability................. I-5
(i) Withholding of Tax........... I-6
1.11 Dissenting Shares................ I-6
Article II
Representations and Warranties
of LIN
2.1 Organization, Standing and
Corporate Power.................. I-7
2.2 Capital Structure................ I-7
2.3 Authority; Noncontravention...... I-8
2.4 LIN SEC Document; Financial
Statements....................... I-10
2.5 Absence of Certain Changes or
Events........................... I-10
2.6 No Extraordinary Payments or
Change in Benefits............... I-11
2.7 Voting Requirements.............. I-11
2.8 State Takeover Statutes.......... I-11
2.9 LIN FCC Licenses; Operations of
LIN Licensed Facilities.......... I-11
2.10 Brokers.......................... I-12
2.11 FCC Qualification................ I-13
2.12 Compliance With Applicable
Laws............................. I-13
2.13 Absence of Undisclosed
Liabilities...................... I-13
2.14 Litigation....................... I-13
2.15 Transactions With Affiliates..... I-13
2.16 Labor Matters.................... I-14
2.17 Employee Arrangements and Benefit
Plans............................ I-14
2.18 Tax Matters...................... I-15
2.19 Intellectual Property............ I-16
2.20 Environmental Matters............ I-16
2.21 Material Agreements.............. I-17
2.22 Tangible Property................ I-18
2.23 NBC Station Venture.............. I-18
2.24 No Other Representations and
Warranties....................... I-18
Article III
Representations and Warranties of
Chancellor
3.1 Organization, Standing and
Corporate Power.................. I-19
3.2 Capital Structure................ I-19
3.3 Authority; Noncontravention...... I-20
3.4 Chancellor SEC Documents......... I-21
3.5 Absence of Certain Changes or
Events........................... I-22
3.6 No Extraordinary Payments or
Change in Benefits............... I-23
3.7 Brokers.......................... I-23
3.8 Opinion of Financial Advisor..... I-23
3.9 Absence of Undisclosed
Liabilities...................... I-23
3.10 Litigation....................... I-23
3.11 Transactions With Affiliates..... I-24
3.12 Chancellor Common Stock.......... I-24
3.13 Voting Requirements.............. I-24
3.14 FCC Qualification................ I-24
3.15 Employee Arrangements and Benefit
Plans............................ I-24
3.16 Tax Matters...................... I-25
3.17 Intellectual Property............ I-26
3.18 Environmental Matters............ I-26
3.19 No Other Representations and
Warranties....................... I-26
Article IV
Additional Agreements
4.1 Preparation of Form S-4 and Proxy
Statement/Prospectus; Information
Supplied......................... I-27
4.2 Stockholder Approval............. I-28
i
4.3 Access to Information;
Confidentiality.................. I-28
4.4 Public Announcements............. I-29
4.5 Acquisition Proposals............ I-29
4.6 Consents, Approvals and
Filings.......................... I-30
4.7 Affiliates Letters............... I-30
4.8 Nasdaq Listing................... I-30
4.9 Indemnification.................. I-30
4.10 Letter of Chancellor's
Accountants...................... I-31
4.11 Letter of LIN's Accountants...... I-31
4.12 Employee Benefit Matters......... I-31
4.13 Termination of Stockholders
Agreement........................ I-31
Article V
Covenants Relating to Conduct of
Business Prior to Merger
5.1 Conduct of Business.............. I-32
5.2 Stock Options; Phantom Stock
Plan............................. I-34
5.3 Other Actions.................... I-35
Article VI
Conditions Precedent
6.1 Conditions to Each Party's
Obligation to Effect the
Merger........................... I-36
(a) Stockholder Approval......... I-36
(b) FCC Order.................... I-36
(c) Governmental and Regulatory
Consents..................... I-36
(d) HSR Act...................... I-36
(e) No Injunctions or
Restraints....................... I-36
(f) Nasdaq Listing............... I-36
(g) Form S-4..................... I-36
6.2 Conditions to Obligations of
LIN.............................. I-36
(a) Representations and
Warranties................... I-36
(b) Performance of Obligations of
Chancellor................... I-37
(c) Tax Opinion.................. I-37
(d) Chancellor Stockholders
Agreement................... I-37
6.3 Conditions to Obligations of
Chancellor....................... I-38
(a) Representations and
Warranties................... I-38
(b) Performance of Obligations of
LIN......................... I-38
(c) Tax Opinion.................. I-38
(d) KXTX Transaction............. I-38
(e) Network Affiliation
Agreements................... I-38
(f) Financial Services
Agreements................... I-38
(g) Dissenting Shares............ I-39
Article VII
Termination, Amendment and Waiver
7.1 Termination...................... I-39
7.2 Effect of Termination............ I-40
7.3 Amendment........................ I-40
7.4 Extension; Consent; Waiver....... I-40
7.5 Procedure For Termination,
Amendment, Extension, Consent or
Waiver........................... I-41
Article VIII
Survival of Provisions
8.1 Survival......................... I-41
Article IX
Notices
9.1 Notices.......................... I-41
Article X
Miscellaneous
10.1 Entire Agreement................. I-43
10.2 Expenses......................... I-43
10.3 Counterparts..................... I-43
10.4 No Third Party Beneficiary....... I-43
10.5 Governing Law.................... I-43
10.6 Assignment; Binding Effect....... I-43
10.7 Headings, Gender, Etc. .......... I-43
10.8 Invalid Provisions............... I-44
10.9 No Recourse Against Others....... I-44
Exhibits
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Exhibit A Form of Affiliate Letter
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered into as
of July 7, 1998, by and between CHANCELLOR MEDIA CORPORATION, a Delaware
corporation ("Chancellor") and RANGER EQUITY HOLDINGS CORPORATION, a Delaware
corporation ("LIN").
RECITALS
WHEREAS, Chancellor and LIN and their respective subsidiaries are engaged in the
radio and television broadcasting businesses, respectively;
WHEREAS, Chancellor and LIN believe it is in the best interests of their
respective stockholders to combine their respective broadcast businesses;
WHEREAS, subject to the terms and conditions set forth herein, (i) the Board of
Directors of Chancellor, upon the recommendation of a duly authorized special
committee thereof (consisting of independent directors), has approved the merger
of LIN with Chancellor and the issuance of shares of the Common Stock, $0.01 par
value (the "Chancellor Common Stock"), of Chancellor in connection therewith,
and (ii) the Board of Directors of LIN has approved the foregoing merger;
WHEREAS, it is the intention of Chancellor and LIN that such merger will qualify
as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, Chancellor and LIN desire to make certain representations, warranties,
covenants and agreements in connection with such merger and also to prescribe
various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.3), LIN shall merge with and into
Chancellor (the "Merger") in accordance with the General Corporation Law of the
State of Delaware (the "Delaware Code"). At the Effective Time, the separate
corporate existence of LIN shall cease and Chancellor shall continue as the
surviving corporation of the Merger (the "Surviving Corporation") under the laws
of the State of Delaware and with all the rights, privileges, immunities and
powers, and subject to all the duties and liabilities, of a corporation
organized under the Delaware Code. The Merger shall have the effects set forth
in the Delaware Code.
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 10:00
a.m., Dallas, Texas time, on the second business day following the date on which
the last to be fulfilled or waived of the conditions set forth
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in Article VI shall be fulfilled or waived in accordance with this Agreement
(the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP, 100 Crescent
Court, Suite 1300, Dallas, Texas 75201, unless another date, time or place is
agreed to in writing by the parties hereto.
1.3 Effective Time. The parties hereto will file with the Secretary of State of
the State of Delaware (the "Delaware Secretary of State") on the Closing Date
(or on such other date as the parties may agree) a certificate of merger or
other appropriate documents, executed in accordance with the relevant provisions
of the Delaware Code, and make all other filings or recordings required under
the Delaware Code in connection with the Merger. The Merger shall become
effective upon the filing of the certificate of merger with the Delaware
Secretary of State, or at such later time specified in such certificate of
merger (the "Effective Time").
1.4 Certificate of Incorporation. The Certificate of Incorporation of
Chancellor shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with its terms and as
provided by the Delaware Code.
1.5 Bylaws. The Bylaws of Chancellor in effect immediately prior to the Merger
shall be the bylaws of the Surviving Corporation until thereafter amended in
accordance with their terms and as provided by applicable law.
1.6 Directors. The directors of Chancellor immediately prior to the Effective
Time and Gary R. Chapman shall, from and after the Effective Time, be the
directors of the Surviving Corporation (with respect to Chancellor directors, in
the same class and term expiration as such director currently serves on the
Chancellor Board of Directors and, with respect to Gary R. Chapman, in such
class and term expiration as determined by the Board of Directors of Chancellor
prior to Closing), until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws.
1.7 Officers. The officers of Chancellor immediately prior to the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
1.8 Effect on LIN Capital Stock.
(a) Outstanding LIN Common Stock. Each share of common stock, $0.01 par value,
of LIN ("LIN Common Stock"), issued and outstanding immediately prior to the
Effective Time (other than shares of LIN Common Stock held as treasury shares by
LIN and other than Dissenting Shares, as defined in Section 1.11) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive 0.0300 validly issued, fully paid and
nonassessable shares of Chancellor Common Stock. The ratio of the shares of
Chancellor Common Stock to be issued in exchange for each whole share of LIN
Common Stock is referred to as the "Exchange Ratio." The shares of Chancellor
Common Stock to be issued to holders of LIN Common Stock in accordance with this
Section 1.8(a), and any cash to be paid in accordance with Section 1.10(f) in
lieu of fractional shares of Chancellor Common Stock, are referred to as the
"Merger Consideration."
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(b) Treasury Shares. Each share of LIN Common Stock which is held as a treasury
share by LIN at the Effective Time shall, by virtue of the Merger and without
any action on the part of LIN, be cancelled and retired and cease to exist,
without any conversion thereof.
(c) Impact of Stock Splits, etc. In the event of any change in Chancellor Common
Stock and/or LIN Common Stock between the date of this Agreement and the
Effective Time of the Merger in accordance with the terms of this Agreement by
reason of any stock split, stock dividend, subdivision, reclassification,
recapitalization, combination, exchange of shares or the like, the number and
class of shares of Chancellor Common Stock to be issued and delivered in the
Merger in exchange for each outstanding share of LIN Common Stock as provided in
this Agreement shall be appropriately adjusted so as to maintain the relative
proportionate interests of the holders of LIN Common Stock and Chancellor Common
Stock.
1.9 Effect on Chancellor Capital Stock. Each share of Chancellor Common Stock,
7% Convertible Preferred Stock, $0.01 par value ("Chancellor 7% Convertible
Preferred Stock"), and $3.00 Convertible Exchangeable Preferred, $0.01 par value
("Chancellor $3.00 Convertible Preferred Stock" and, collectively with the
Chancellor 7% Convertible Preferred Stock, the "Chancellor Convertible Preferred
Stock"), of Chancellor issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall be unaffected by the Merger.
1.10 Exchange of Certificates.
(a) Paying Agent. Immediately following the Effective Time, Chancellor shall
deposit with its transfer agent and registrar (the "Paying Agent"), for the
benefit of the holders of LIN Common Stock (other than treasury shares and
Dissenting Shares), certificates representing the shares of Chancellor Common
Stock to be issued to such holders pursuant to Section 1.8 (such certificates,
together with any dividends or distributions with respect to the shares
represented by such certificates and any cash paid in lieu of fractional shares
of Chancellor Common Stock pursuant to Section 1.10(f), being hereinafter
referred to as the "Payment Fund").
(b) Exchange Procedures. As soon as practicable after the Effective Time, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of LIN Common Stock shall, upon surrender to the Paying Agent
of such certificate or certificates and acceptance thereof by the Paying Agent,
be entitled to a certificate representing that number of whole shares of
Chancellor Common Stock which the aggregate number of shares of LIN Common Stock
previously represented by such certificate or certificates surrendered shall
have been converted into the right to receive pursuant to Section 1.8 of this
Agreement, as the case may be, plus any cash to be received in lieu of
fractional shares, as provided in Section 1.10(f) below. The Paying Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Paying Agent may impose to effect an orderly exchange thereof
in accordance with its normal exchange practices. If the Merger Consideration
(or any portion thereof) is to be delivered to any person other than the person
in whose name the certificate or certificates representing the shares of LIN
Common Stock surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such exchange shall pay to the Paying Agent any transfer
or other
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Taxes (as defined in Section 2.18) required by reason of the payment of such
consideration to a person other than the registered holder of the certificate(s)
surrendered, or shall establish to the satisfaction of the Paying Agent that
such Tax has been paid or is not applicable. After the Effective Time, there
shall be no further transfer on the records of LIN or its transfer agent of
certificates representing shares of LIN Common Stock, and if such certificates
are presented to the Surviving Corporation, they shall be cancelled against
delivery of the Merger Consideration as hereinabove provided. Until surrendered
as contemplated by this Section 1.10(b), each certificate representing shares of
LIN Common Stock (other than certificates representing treasury shares to be
cancelled in accordance with the terms of this Agreement), shall be deemed at
any time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration without any interest thereon, as
contemplated by Section 1.8.
(c) Letter of Transmittal. Promptly after the Effective Time (but in no event
more than five business days thereafter), Chancellor shall require the Paying
Agent to mail to each record holder of certificates that immediately prior to
the Effective Time represented shares of LIN Common Stock which have been
converted pursuant to Section 1.8, a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title shall pass,
only upon proper delivery of certificates representing shares of LIN Common
Stock to the Paying Agent, and which shall be in such form and have such
provisions as Chancellor reasonably may specify) and instructions for use in
surrendering such certificates and receiving the Merger Consideration to which
such holder shall be entitled therefor pursuant to Section 1.8.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Chancellor Common Stock with a record date after
the Effective Time shall be paid to the holder of any certificate that
immediately prior to the Effective Time represented shares of LIN Common Stock
which have been converted pursuant to Section 1.8, until the surrender for
exchange of such certificate in accordance with this Article I. Following
surrender for exchange of any such certificate, there shall be paid to the
holder of such certificate, without interest, (i) at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the number of whole shares of
Chancellor Common Stock into which the shares of LIN Common Stock represented by
such certificate immediately prior to the Effective Time were converted pursuant
to Section 1.8, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time,
but prior to such surrender, and with a payment date subsequent to such
surrender, payable with respect to such whole shares of Chancellor Common Stock.
(e) No Further Ownership Rights in LIN Common Stock. The Merger Consideration
(or, in the case of Dissenting Shares, the cash payment therefor) paid upon the
surrender for exchange of certificates representing shares of LIN Common Stock
in accordance with the terms of this Article I shall be deemed to have been
issued and paid in full satisfaction of all rights pertaining to the shares of
LIN Common Stock theretofore represented by such certificates, subject, however,
to Chancellor's obligation (if any) to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have been
declared by LIN on the shares of LIN Common Stock in accordance with the terms
of this Agreement or prior to the date of this Agreement and which remain unpaid
at the Effective Time.
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(f) No Fractional Shares. No certificates or scrip representing fractional
shares of Chancellor Common Stock shall be issued upon the surrender for
exchange of certificates that immediately prior to the Effective Time
represented shares of LIN Common Stock which have been converted pursuant to
Section 1.8, and such fractional share interests will not entitle the owner
thereof to vote or any rights of a stockholder of Chancellor. In lieu of any
such fractional shares, the Paying Agent shall, on behalf of all holders of
fractional shares of Chancellor Common Stock, aggregate all such fractional
interests (collectively, the "Fractional Shares") and such Fractional Shares
shall be sold by the Paying Agent as agent for the holders of such Fractional
Shares at the then prevailing price on the Nasdaq Stock Market, all in the
manner provided hereinafter. Until the net proceeds of such sale or sales have
been distributed to the holders of Fractional Shares, the Paying Agent shall
retain such proceeds in trust for the benefit of such holders as part of the
Payment Fund. All commissions, transfer taxes and other out-of-pocket
transaction costs, including reasonable expenses and compensation of the Paying
Agent shall be charged against the proceeds from the sale of the Fractional
Shares. The sale of the Fractional Shares shall be executed on the Nasdaq Stock
Market or through one or more member firms of the Nasdaq Stock Market and will
be executed in round lots, to the extent practicable. The Paying Agent will
determine the portion, if any, of the net proceeds of such sale or sales to
which each holder of Fractional Shares is entitled, by multiplying the amount of
the aggregate net proceeds of the sale of the Fractional Shares by a fraction,
the numerator of which is the amount of Fractional Shares to which such holder
is entitled and the denominator of which is the aggregate amount of Fractional
Shares to which all holders of Fractional Shares are entitled; provided,
however, that in lieu of the foregoing, at the sole option of Chancellor,
Chancellor may instead satisfy payment with respect to such Fractional Shares by
delivering to the Paying Agent reasonably promptly following the Effective Time
cash (without interest) in an amount equal to the aggregate amount of all such
Fractional Shares multiplied by the closing price per share of Chancellor Common
Stock on the Nasdaq Stock Market on the trading day immediately prior to the
Effective Time.
(g) Termination of Payment Fund. Any portion of the Payment Fund which remains
undistributed to the holders of certificates representing shares of LIN Common
Stock for 120 days after the Effective Time shall be delivered to Chancellor,
upon demand, and any holders of shares of LIN Common Stock who have not
theretofore complied with this Article I shall thereafter look only to
Chancellor and only as general creditors thereof for payment of their claims for
any Merger Consideration and any dividends or distributions with respect to
Chancellor Common Stock to which they are entitled pursuant to this Article I.
(h) No Liability. Neither the Surviving Corporation nor the Paying Agent shall
be liable to any person in respect of any cash, shares, dividends or
distributions payable from the Payment Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
certificates representing shares of LIN Common Stock shall not have been
surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of such
certificate would otherwise escheat to or become the property of any
Governmental Entity (as defined in Section 2.3)), any such cash, shares,
dividends or distributions payable in respect of such certificate shall, to the
extent permitted by applicable law, become the
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property of Surviving Corporation, free and clear of all claims or interest of
any person previously entitled thereto.
(i) Withholding of Tax. Chancellor shall be entitled to deduct and withhold from
the Merger Consideration otherwise payable pursuant to this Agreement to any
former holder of LIN Common Stock such amount as Chancellor (or any affiliate
thereof) or the Paying Agent is required to deduct and withhold with respect to
the making of such payment under the Code or state, local or foreign Tax law. To
the extent that amounts are so withheld by Chancellor, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
former holder of LIN Common Stock in respect of which such deduction and
withholding was made by Chancellor.
1.11 Dissenting Shares. Notwithstanding anything herein to the contrary in this
Agreement, shares of LIN Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto and who properly demands in writing appraisal of such shares
of LIN Common Stock in accordance with Section 262 of the Delaware Code and who
shall not have withdrawn such demand or otherwise have forfeited appraisal
rights, shall not be converted into or represent the right to receive the Merger
Consideration therefor ("Dissenting Shares"). Such stockholders shall be
entitled to receive payment of the appraised value of such shares of LIN Common
Stock held by them in accordance with the provisions of Section 262 of the
Delaware Code, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such securities under Section 262 shall thereupon be
deemed to have been converted into, as of the Effective Time, the right to
receive, without any interest thereon, the Merger Consideration, upon surrender,
in the manner provided in this Article I, of the certificate or certificates
that formerly represented such securities. LIN shall take all actions required
to be taken by it in accordance with Section 262(d) of the Delaware Code with
respect to the holders of LIN Common Stock. LIN shall give to Chancellor prompt
written notice of any demands for appraisal received by it, withdrawals of such
demands, and any other instruments served pursuant to Delaware law and received
by it, and Chancellor shall have the right to participate in all negotiations
and proceedings with respect to such demands. Prior to the Effective Time, LIN
shall not, except with the prior written consent of Chancellor, make any
payments with respect to any demands for appraisal, or settle or offer to
settle, any such demands.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LIN
LIN hereby represents and warrants to Chancellor as follows:
2.1 Organization, Standing and Corporate Power. Each of LIN and the LIN
Significant Subsidiaries (as defined below) is a corporation, limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate, partnership or limited liability company power and
authority to carry on its business as now being conducted. Each of LIN and the
LIN Significant Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified could not reasonably be expected to
have a material adverse effect on the business, properties, results of
operations, or condition (financial or otherwise) of LIN and its subsidiaries,
considered as a whole (other than as a result of changes in general economic
conditions or in economic conditions generally affecting the television
broadcasting industry) (a "LIN Material Adverse Effect"). LIN has delivered to
Chancellor complete and correct copies of its Certificate of Incorporation and
Bylaws, as amended to the date of this Agreement. For purposes of this
Agreement, a "LIN Significant Subsidiary" means (i) Ranger Equity Holdings A
Corp., a Delaware corporation ("Equity Holdings A"), (ii) Ranger Equity Holdings
B Corp., a Delaware corporation ("Equity Holdings B"), (iii) LIN Holdings Corp.,
a Delaware corporation ("LIN Holdings"), (iv) LIN Television Corporation, a
Delaware corporation (the "LIN Operating Subsidiary"), and (v) any other
subsidiary of LIN that operates, or holds an FCC license to operate, a LIN
Licensed Facility (as defined in Section 2.9) or a LIN LMA Facility (as defined
in Section 2.9) or is a party to a Material Agreement (as defined in Section
2.21). For purposes of this Agreement, a "subsidiary" of any person shall mean
any other entity at least a majority of the equity interests in which is
beneficially owned, directly or indirectly, by the specified person.
2.2 Capital Structure. (a) The authorized capital stock of LIN consists of (i)
1,000,000,000 shares of LIN Common Stock and (ii) 5,000,000 shares of preferred
stock, $0.01 par value, none of which shares of preferred stock are issued and
outstanding. At the close of business on July 6, 1998, 539,321,532 shares of LIN
Common Stock were issued and outstanding, 30,100,000 shares of LIN Common Stock
were reserved for issuance pursuant to options to purchase LIN Common Stock
which have been, or will be prior to the Effective Time, granted to directors,
officers or employees of LIN or others ("New LIN Stock Options") pursuant to the
LIN 1998 Stock Option Plan (the "LIN Stock Option Plan"), 5,594,086 shares of
LIN Common Stock were reserved for issuance pursuant to certain additional
options to purchase LIN Common Stock that have been granted to directors,
officers or employees of LIN or others (the "Substitute LIN Stock Options" and,
collectively with the New LIN Stock Options, the "LIN Stock Options"), and no
shares of LIN Common Stock were held as treasury shares by LIN or any subsidiary
of LIN. At the close of business on July 6, 1998, 14,152,290 Phantom Stock Units
("Phantom Stock Units") were outstanding under LIN's Phantom Stock Plan (the
"Phantom Stock Plan"). Except as set forth above, at the close of business on
July 6, 1998, no shares of capital stock or other equity securities of LIN were
authorized, issued, reserved for issuance or outstanding. All outstanding shares
of LIN Common Stock are,
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and all shares which may be issued pursuant to the LIN Stock Option Plan, or
upon the exercise of outstanding LIN Stock Options will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. No bonds, debentures, notes or other indebtedness of LIN or
any subsidiary of LIN having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of LIN or any subsidiary of LIN may vote are issued or
outstanding. All the outstanding shares of capital stock or other equity
interests of each subsidiary of LIN have been validly issued and are fully paid
and nonassessable and are owned by LIN, by one or more wholly-owned subsidiaries
of LIN or by LIN and one or more such wholly-owned subsidiaries, free and clear
of all pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens"), except for (i) Liens
arising out of the senior credit facility of the LIN Operating Subsidiary, and
(ii) Liens arising out of the guarantee by Equity Holdings B of certain
obligations of Station Venture Holdings, LLC to General Electric Capital
Corporation (the "GECC Guarantee"). Except as set forth above and except as set
forth in that certain Stockholders Agreement, dated as of March 3, 1998 (the
"Stockholders Agreement"), among LIN and the holders of LIN Common Stock parties
thereto (which provides for preemptive rights and restrictions on transfer),
neither LIN nor any subsidiary of LIN has any outstanding option, warrant,
subscription or other right, agreement or commitment that either (i) obligates
LIN or any subsidiary of LIN to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of LIN or any LIN
Significant Subsidiary or (ii) restricts the transfer of LIN Common Stock. Since
the close of business on July 6, 1998 to the date hereof, neither LIN nor any
subsidiary of LIN has issued any capital stock or securities or other rights
convertible into or exercisable or exchangeable for shares of such capital
stock.
(b) LIN owns and has good and marketable title to all of the issued and
outstanding shares of capital stock of each of Equity Holdings A and Equity
Holdings B, in each case free and clear of all Liens, and LIN has no independent
assets, operations or liabilities other than the ownership of the capital stock
of Equity Holdings A and Equity Holdings B. Equity Holdings A and Equity
Holdings B collectively own and have good and marketable title to all of the
outstanding capital stock of LIN Holdings, free and clear of all Liens other
than with respect to Equity Holdings B, the GECC Guarantee, and neither Equity
Holdings A nor Equity Holdings B has any independent assets, operations or
liabilities other than the ownership of the capital stock of LIN Holdings.
2.3 Authority; Noncontravention. LIN has the requisite corporate power and
authority to enter into this Agreement and, subject to the approval of its
stockholders as set forth in Section 4.2(a) with respect to the approval of this
Agreement and the consummation of the Merger (the "LIN Stockholders Approval"),
to consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by LIN and the consummation by LIN of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of LIN, subject, in the case of the Merger, to the
LIN Stockholders Approval. This Agreement has been duly executed and delivered
by LIN and, assuming this Agreement constitutes the valid and binding agreement
of each of the other parties hereto, constitutes a valid and binding obligation
of LIN, enforceable against it in accordance with its terms except that the
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditor's rights generally and (b) general
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principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity). Except as disclosed in writing by LIN to
Chancellor in a disclosure letter (the "LIN Disclosure Letter") delivered prior
to the execution and delivery of the Agreement, the execution and delivery of
this Agreement do not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not, (i) conflict
with any of the provisions of the Certificate of Incorporation or Bylaws of LIN
or the comparable documents of any LIN Significant Subsidiary, (ii) subject to
the governmental filings and other matters referred to in the following
sentence, conflict with, result in a breach of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which LIN or any of the LIN Significant Subsidiaries is a party
or by which LIN or any of the LIN Significant Subsidiaries or any of their
assets is bound or affected, (iii) result in an obligation by LIN, the Surviving
Corporation, Chancellor, or any of their respective subsidiaries to redeem,
repurchase or retire (or offer to redeem, repurchase or retire) any indebtedness
of LIN or any of its subsidiaries outstanding as of the date hereof or equity
security of LIN or any of its subsidiaries outstanding as of the date hereof, or
(iv) subject to the governmental filings and other matters referred to in the
following sentence, contravene any law, rule or regulation of any state or of
the United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award currently in effect,
except, in the cases of the foregoing clauses (ii) through (iv), for conflicts,
breaches, defaults or other consequences (collectively, "breaches") that,
individually or in the aggregate, could not reasonably be expected to have a LIN
Material Adverse Effect or to materially hinder LIN's ability to consummate the
transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any governmental
agency or regulatory authority (a "Governmental Entity") which has not been
received or made, is required by or with respect to LIN or any of the LIN
Significant Subsidiaries in connection with the execution and delivery of this
Agreement by LIN or the consummation by LIN of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), with respect to the Merger and the termination or earlier expiration
of the applicable waiting period thereunder, (ii) such filings with and
approvals required by the Federal Communications Commission or any successor
entity (the "FCC") under the Communications Act of 1934, as amended, and the
rules, regulations and policies of the FCC promulgated thereunder (collectively,
the "Communications Act") including those required in connection with the
transfer of control of LIN FCC Licenses (as defined in Section 2.9) for the
operation of the LIN Licensed Facilities, (iii) the filing of the certificate of
merger with the Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which LIN is qualified to do business,
(iv) such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the other transactions contemplated
by this Agreement, and (v) such filings as may be required in connection with
statutory provisions and regulations relating to real property transfer gains
taxes and real property transfer taxes.
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2.4 LIN SEC Document; Financial Statements. (i) LIN Holdings and the LIN
Operating Subsidiary (together with certain subsidiary guarantors thereof) have
filed with the Securities and Exchange Commission (the "SEC") a Registration
Statement on Form S-1 (the "LIN SEC Document"), filed on May 29, 1998, with
respect to the registration of certain senior discount notes of LIN Holdings and
senior subordinated notes of the LIN Operating Subsidiary; (ii) as of the date
of such filing, the LIN SEC Document complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations of the SEC promulgated thereunder applicable to
such LIN SEC Document, and such LIN SEC Document as of such date did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided, however, it is acknowledged and agreed by Chancellor that
the Merger and the transactions contemplated by this Agreement and further
developments since the date of such filing with respect to the matters described
in Section 5.1(b)(i) were not disclosed or required to be disclosed in the LIN
SEC Document on the date of such filing); and (iii) as of their respective
dates, the consolidated financial statements of LIN Holdings and its
predecessors included in the LIN SEC Document complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Rule
10-01 of Regulation S-X) and fairly present, in all material respects, the
consolidated financial position of LIN Holdings and its consolidated
subsidiaries (or its predecessors and their respective consolidated
subsidiaries) as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (on the basis stated
therein and subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments).
2.5 Absence of Certain Changes or Events. Except as disclosed in the LIN SEC
Document or the LIN Disclosure Letter, or as otherwise agreed to in writing
after the date hereof by Chancellor, or as expressly permitted by this
Agreement, since the date of the most recent audited financial statements of LIN
Holdings contained in the LIN SEC Document, LIN and its subsidiaries have
conducted their business only in the ordinary course, and there has not been (i)
any change which could reasonably be expected to have a LIN Material Adverse
Effect (including as a result of the consummation of the transactions
contemplated by this Agreement), (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of LIN's outstanding capital stock, (iii) any split, combination
or reclassification of any of its outstanding capital stock or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for shares of its outstanding capital stock, (iv) (x) any
granting by LIN or any of its subsidiaries to any director, officer or other
employee or independent contractor of LIN or any of its subsidiaries of any
increase in compensation or acceleration of benefits, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements in effect as of the date of the most recent audited
financial statements of LIN Holdings contained in the LIN SEC Document, (y) any
granting by LIN or any of its subsidiaries to any director, officer or other
employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or
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termination pay, or pay in connection with any change of control of LIN, except
in the ordinary course of business consistent with prior practice or as was
required under any employment, severance or termination agreements in effect as
of the date of the most recent audited financial statements of LIN Holdings
contained in the LIN SEC Document, or (z) any entry by LIN or any of its
subsidiaries into any employment, severance, change of control, or termination
or similar agreement with any director, executive officer or other employee or
independent contractor other than in the ordinary course of business consistent
with past practices, or (v) any change in accounting methods, principles or
practices by LIN or any of its subsidiaries materially affecting its assets,
liability or business, except insofar as may have been required by a change in
generally accepted accounting principles.
2.6 No Extraordinary Payments or Change in Benefits. Except as disclosed in the
LIN Disclosure Letter, no current or former director, officer, employee or
independent contractor of LIN or any of its subsidiaries is entitled to receive
any payment under any agreement, arrangement or policy (written or oral)
relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "LIN Benefit
Plans"), nor will any benefit received or to be received by any current or
former director, officer, employee or independent contractor of LIN or any of
its subsidiaries under any LIN Benefit Plan be accelerated or modified, as a
result of or in connection with the execution and delivery of, or the
consummation of the transactions contemplated by, this Agreement.
2.7 Voting Requirements. The affirmative vote of a majority of the outstanding
shares of LIN Common Stock entitled to vote with respect to the approval of the
Merger is the only vote of the holders of any class or series of LIN's capital
stock necessary to approve this Agreement and the transactions contemplated by
this Agreement.
2.8 State Takeover Statutes. The Board of Directors of LIN has approved the
terms of this Agreement and the consummation of the transactions contemplated by
this Agreement, and such approval is sufficient to render inapplicable to the
Merger and the other transactions contemplated by this Agreement the provisions
of Section 203 of the Delaware Code. To LIN's knowledge, no other state takeover
statute or similar statute or regulation applies or purports to apply to the
Merger, this Agreement or any of the transactions contemplated by this Agreement
and no provision of the Certificate of Incorporation, Bylaws or other governing
instrument of LIN or any of its subsidiaries would, directly or indirectly,
restrict or impair the ability of LIN to consummate the transactions
contemplated by this Agreement.
2.9 LIN FCC Licenses; Operations of LIN Licensed Facilities. LIN and its
subsidiaries have operated the television stations for which LIN and any of its
subsidiaries holds licenses from the FCC, in each case which are owned or
operated by LIN and its subsidiaries (each a "LIN Licensed Facility" and
collectively the "LIN Licensed Facilities"), in material compliance with the
terms of the licenses issued by the FCC to LIN and its subsidiaries (the "LIN
FCC Licenses") (complete and correct copies of each of which have been made
available to Chancellor), and in material compliance with the Communications
Act, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect. To the
knowledge of LIN, each broadcast television station for which LIN or any of its
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subsidiaries provides programming and advertising services pursuant to a local
marketing agreement (each a "LIN LMA Facility" and collectively the "LIN LMA
Facilities") has been operated in material compliance with the terms of the
licenses issued by the FCC to the owner of such LIN LMA Facility (each an "LMA
Facility FCC License" and collectively the "LMA Facility FCC Licenses"). LIN
has, and its subsidiaries have, timely filed or made all applications, reports
and other disclosures required by the FCC to be made with respect to the LIN
Licensed Facilities and have timely paid all FCC regulatory fees with respect
thereto, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect. LIN and
each of its subsidiaries have, and are the authorized legal holders of, all the
LIN FCC Licenses necessary or used in the operation of the businesses of the LIN
Licensed Facilities as presently operated. To the knowledge of LIN, the
third-parties with which LIN or its subsidiaries have entered into local
marketing agreements with respect to the LIN LMA Facilities have, and are the
authorized legal holders of, the LMA Facility FCC License necessary or used in
the operation of the business of the respective LIN LMA Facility to which such
local marketing agreement relates. All LIN FCC Licenses and, to the knowledge of
LIN, LMA Facility FCC Licenses are validly held and are in full force and
effect, unimpaired by any act or omission of LIN, each of its subsidiaries (or,
to LIN's knowledge, their respective predecessors) or their respective officers,
employees or agents, except where such impairments could not, individually or in
the aggregate, reasonably be expected to have a LIN Material Adverse Effect. As
of the date hereof, except as set forth in the LIN Disclosure Letter, no
application, action or proceeding is pending for the renewal of any LIN FCC
License or, to the knowledge of LIN, LMA Facility FCC License as to which any
petition to deny has been filed and, to LIN's knowledge, there is not now before
the FCC any material investigation, proceeding, notice of violation or order of
forfeiture relating to any LIN Licensed Facility or LIN LMA Facility that, if
adversely determined, could reasonably be expected to have a LIN Material
Adverse Effect, and LIN is not aware of any basis that could reasonably be
expected to cause the FCC not to renew any of the LIN FCC Licenses or the LMA
Facility FCC Licenses (other than proceedings to amend FCC rules or the
Communications Act of general applicability to the television or broadcast
industry). There is not now pending and, to LIN's knowledge, there is not
threatened, any action by or before the FCC to revoke, suspend, cancel, rescind
or modify in any material respect any of the LIN FCC Licenses or, to the
knowledge of LIN, any of the LMA Facility FCC Licenses that, if adversely
determined, could reasonably be expected to have a LIN Material Adverse Effect
(other than proceedings to amend FCC rules or the Communications Act of general
applicability to the television or broadcast industry).
2.10 Brokers. Except with respect to Hicks, Muse & Co. Partners, L.P. ("Hicks
Muse") and Greenhill & Co., LLC ("Greenhill"), all negotiations relating to this
Agreement and the transactions contemplated hereby have been carried out by LIN
directly with Chancellor without the intervention of any person on behalf of LIN
in such a manner as to give rise to any valid claim by any person against LIN,
Chancellor, the Surviving Corporation or any subsidiary of any of them for a
finder's fee, brokerage commission, or similar payment. The LIN Disclosure
Letter sets forth a written summary of the terms of its agreement relating to
the transactions contemplated by this Agreement with Greenhill and Section
6.3(f) of this Agreement sets forth a summary of the terms of its agreement
relating to the transactions contemplated by this Agreement with Hicks Muse, and
LIN has no other agreements or understandings (written or oral) with respect to
such services.
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2.11 FCC Qualification. LIN and its subsidiaries are fully qualified under the
Communications Act to be the transferors of control of the LIN FCC Licenses.
Except as disclosed in the LIN Disclosure Letter, LIN is not aware of any facts
or circumstances relating to the FCC qualifications of LIN or any of its
subsidiaries that would prevent the FCC's granting the FCC Form 315 Transfer of
Control Application to be filed with respect to the Merger.
2.12 Compliance With Applicable Laws. Each of LIN and its subsidiaries has in
effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights (collectively, "Permits") necessary for it to own, lease or operate
its properties and assets and to carry on its business as now conducted, other
than such Permits the absence of which could not, individually or in the
aggregate, reasonably be expected to have a LIN Material Adverse Effect, and
there has occurred no default under any such Permit other than such defaults
which, individually or in the aggregate, could not reasonably be expected to
have a LIN Material Adverse Effect. Except as disclosed in the LIN Disclosure
Letter, LIN and its subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules orders and regulations of any Governmental Entity,
except for such noncompliance which individually or in the aggregate could not
reasonably be expected to have a LIN Material Adverse Effect.
2.13 Absence of Undisclosed Liabilities. Except for (x) liabilities disclosed
in the LIN SEC Document, (y) current liabilities incurred by LIN Holdings and
its subsidiaries in the ordinary course of business consistent with past
practices since the date of the most recent consolidated balance sheet of LIN
Holdings set forth in the LIN SEC Document and (z) liabilities contemplated by
this Agreement or disclosed in the LIN Disclosure Letter, LIN and its
subsidiaries do not have any material indebtedness, obligations or liabilities
of any kind (whether accrued, absolute, contingent or otherwise) (i) required by
GAAP to be reflected on a consolidated balance sheet of LIN and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have a LIN Material Adverse Effect.
2.14 Litigation. Except as disclosed in the LIN SEC Document or the LIN
Disclosure Letter, to the date of this Agreement, there is no litigation,
administrative action, arbitration or other proceeding pending against LIN or
any of its subsidiaries or, to the knowledge of LIN, threatened that,
individually or in the aggregate, could reasonably be expected to (i) have a LIN
Material Adverse Effect or (ii) prevent, or significantly delay the consummation
of the transactions contemplated by this Agreement. Except as set forth in the
LIN Disclosure Letter, to the date of this Agreement, there is no judgment,
order, injunction or decree of any Governmental Entity outstanding against LIN
or any of its subsidiaries that, individually or in the aggregate, could
reasonably be expected to have any effect referred to in the foregoing clauses
(i) and (ii) of this Section 2.14.
2.15 Transactions With Affiliates. Other than the transactions contemplated by
this Agreement, or except to the extent disclosed in the LIN SEC Document or in
the LIN Disclosure Letter, there have been no transactions, agreements,
arrangements or understandings between LIN or its subsidiaries, on the one hand,
and LIN's affiliates (other than subsidiaries of LIN) or any other person, on
the other hand, that would be required to be disclosed under Item 404 of
Regulation S-K under the Securities Act.
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2.16 Labor Matters. Except as set forth in the LIN Disclosure Letter or in the
LIN SEC Document, (i) neither LIN nor any of its subsidiaries is a party to any
labor or collective bargaining agreement, and no employees of LIN or any of its
subsidiaries are represented by any labor organization, (ii) to the knowledge of
LIN, there are no material representation or certification proceedings, or
petitions seeking a representation proceeding, pending or threatened to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority and (iii) to the knowledge of LIN, there are no
material organizing activities involving LIN or any of its subsidiaries with
respect to any group of employees of LIN or its subsidiaries.
2.17 Employee Arrangements and Benefit Plans. (a) The LIN Disclosure Letter
sets forth a complete and correct list of (i) all LIN Benefit Plans, including
all employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and (ii) all
written employment, severance, termination, change-in-control, or
indemnification agreements (collectively, the "Employment Arrangements"), in
each case under which LIN or any of its subsidiaries has any obligation or
liability (contingent or otherwise), except for on-air agreements entered into
in the ordinary course of business consistent with past practices and any
Employment Arrangement which provides for annual compensation (excluding
benefits) of $150,000 or less or has an unexpired term of and can be terminated
(before, on or after a change in control) in less than one year from the date
hereof without additional cost or penalty. Except as set forth in the LIN SEC
Document or in the LIN Disclosure Letter and except as could not, individually
or in the aggregate, reasonably be expected to have a LIN Material Adverse
Effect: (A) each LIN Benefit Plan has been administered and is in compliance
with the terms of such plan and all applicable laws, rules and regulations, (B)
no "reportable event" (as such term is used in section 4043 of ERISA) (other
than those events for which the 30 day notice has been waived pursuant to the
regulations), "prohibited transaction" (as such term is used in section 406 of
ERISA or section 4975 of the Code) or "accumulated funding deficiency" (as such
term is used in section 412 or 4971 of the Code) has heretofore occurred with
respect to any LIN Benefit Plan and (C) each LIN Benefit Plan intended to
qualify under Section 401(a) of the Code has received a favorable determination
from the United States Internal Revenue Service ("IRS") regarding its qualified
status and no notice has been received from the IRS with respect to the
revocation of such qualification.
(b) To the date of this Agreement, there is no litigation or administrative or
other proceeding involving any LIN Benefit Plan or Employment Arrangement nor
has LIN or any of its subsidiaries received written notice that any such
proceeding is threatened, in each case where an adverse determination could
reasonably be expected to have a LIN Material Adverse Effect. Except as set
forth in the LIN Disclosure Letter, neither LIN nor any of its subsidiaries has
contributed to any "multiemployer plan" (within the meaning of section 3(37) of
ERISA) and neither LIN nor any of its subsidiaries has incurred, nor, to the
best of LIN's knowledge, is reasonably likely to incur any withdrawal liability
which remains unsatisfied in an amount which could reasonably be expected to
have a LIN Material Adverse Effect. The termination of, or withdrawal from, any
LIN Benefit Plan or multiemployer plan to which LIN or its subsidiaries
contributes, on or prior to the Closing Date, will not subject LIN or any of its
subsidiaries to any liability under Title IV of ERISA that could reasonably be
expected to have a LIN Material Adverse Effect.
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2.18 Tax Matters. Except as set forth in the LIN Disclosure Letter, (A) LIN and
each of its subsidiaries have timely filed with the appropriate taxing
authorities all material Tax Returns (as defined below) required to be filed
through the date hereof and will timely file any such material Tax Returns
required to be filed on or prior to the Closing Date (except those under valid
extension) and all such Tax Returns are and will be true and correct in all
material respects, (B) all Taxes (as defined below) of LIN and each of its
subsidiaries shown to be due on the Tax Returns described in (A) above have been
or will be timely paid or adequately reserved for in accordance with GAAP
(except to the extent that such Taxes are being contested in good faith), (C) no
material deficiencies for any Taxes have been proposed, asserted or assessed
against LIN or any of its subsidiaries that have not been fully paid or
adequately provided for in the appropriate financial statements of LIN and its
subsidiaries, and no power of attorney with respect to any Taxes has been
executed or filed with any taxing authority and no material issues relating to
Taxes have been raised in writing by any governmental authority during any
presently pending audit or examination, (D) LIN and its subsidiaries are not now
subject to audit by any taxing authority and no waivers of statutes of
limitation with respect to the Tax Returns have been given by or requested in
writing from LIN or any of its subsidiaries, (E) there are no material liens for
Taxes (other than for Taxes not yet due and payable) on any assets of LIN or any
of its subsidiaries, (F) neither LIN nor any of its subsidiaries is a party to
or bound by (nor will any of them become a party to or bound by) any tax
indemnity, tax sharing, tax allocation agreement, or similar agreement,
arrangement or practice with respect to Taxes, (G) neither LIN nor any of its
subsidiaries has ever been a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code, other than the affiliated group
of which LIN is the common parent, (H) neither LIN nor any of its subsidiaries
has filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provision of state or local
law) or agreed to have Section 341(f)(2) of the Code (or any corresponding
provisions of state or local law) apply to any disposition of any asset owned by
LIN or any of its subsidiaries, as the case may be, (l) neither LIN nor any of
its subsidiaries has agreed to make, nor is any required to make, any adjustment
under Section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method or otherwise, (J) LIN and
its subsidiaries have complied in all material respects with all applicable
laws, rules and regulations relating to withholding of Taxes and (K) no property
owned by LIN or any of its subsidiaries (i) is property required to be treated
as being owned by another person pursuant to the provisions of Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended and in effect immediately prior
to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(l) of the Code; or (iii) is tax
exempt bond financed property within the meaning of Section 168(g) of the Code.
As used in this Agreement, "Tax Return" shall mean any return, report, claim for
refund, estimate, information return or statement or other similar document
relating to or required to be filed with any governmental authority with respect
to Taxes, including any schedule or attachment thereto, and including any
amendment thereof. As used in this Agreement, "Taxes" shall mean taxes of any
kind, including but not limited to those measured by or referred to as income,
gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or
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charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign.
2.19 Intellectual Property. Except as set forth in the LIN Disclosure Letter
and except to the extent that the inaccuracy of any of the following (or the
circumstances giving rise to such inaccuracy), individually or in the aggregate,
could not reasonably be expected to have a LIN Material Adverse Effect: (a) LIN
and each of its subsidiaries owns, or is licensed to use (in each case, free and
clear of any Liens), all Intellectual Property (as defined below) used in or
necessary for the conduct of its business as currently conducted; (b) the use of
any Intellectual Property by LIN and its subsidiaries does not infringe on or
otherwise violate the rights of any person and is in accordance with any
applicable license pursuant to which LIN or any subsidiary acquired the right to
use any Intellectual Property; (c) to the knowledge of LIN, no person is
challenging, infringing on or otherwise violating any right of LIN or any of its
subsidiaries with respect to any Intellectual Property owned by and/or licensed
to LIN or its subsidiaries; and (d) neither LIN nor any of its subsidiaries has
received any written notice of any pending claim with respect to any
Intellectual Property used by LIN and its subsidiaries and to its knowledge no
Intellectual Property owned and/or licensed by LIN or its subsidiaries is being
used or enforced in a manner that would result in the abandonment, cancellation
or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and
applications in any jurisdiction to register, the foregoing, including any
extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not, in any jurisdiction; registrations or
applications for registration of copyrights in any jurisdiction, and any
renewals or extensions thereof; any similar intellectual property or proprietary
rights; and any claims or causes of action arising out of or relating to any
infringement or misappropriation of any of the foregoing.
2.20 Environmental Matters. Except as disclosed in the LIN SEC Document or in
the LIN Disclosure Letter and except as could not reasonably be expected to have
a LIN Material Adverse Effect: (i) the operations of LIN and its subsidiaries
have been and are in compliance with all Environmental Laws (as defined below)
and with all Permits required by Environmental Laws, (ii) to the date of this
Agreement, there are no pending or, to the knowledge of LIN, threatened,
actions, suits, claims, investigations or other proceedings (collectively,
"Actions") under or pursuant to Environmental Laws against LIN or its
subsidiaries or involving any real property currently or, to the knowledge of
LIN, formerly owned, operated or leased by LIN or its subsidiaries, (iii) LIN
and its subsidiaries are not subject to any Environmental Liabilities (as
defined below), and, to the knowledge of LIN, no facts, circumstances or
conditions relating to, arising from, associated with or attributable to any
real property currently or, to the knowledge of LIN, formerly owned, operated or
leased by LIN or its subsidiaries or operations thereon that
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could reasonably be expected to result in Environmental Liabilities, (iv) all
real property owned and to the knowledge of LIN all real property operated or
leased by LIN or its subsidiaries is free of contamination from Hazardous
Material (as defined below) and (v) there is not now, nor, to the knowledge of
LIN, has there been in the past, on, in or under any real property owned, leased
or operated by LIN or any of its predecessors (a) any underground storage tanks,
above-ground storage tanks, dikes or impoundments containing Hazardous
Materials, (b) any asbestos-containing materials, (c) any polychlorinated
biphenyls, or (d) any radioactive substances.
As used in this Agreement, "Environmental Laws" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health or the
environment, as currently in effect and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. sec. 9601 et seq., the Hazardous Materials Transportation Act 49
U.S.C. sec. 1801 et seq., the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. sec. 6901 et seq., the Clean Water Act, 33 U.S.C. sec. 1251 et seq.,
the Clean Air Act, 33 U.S.C. sec. 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. sec. 2601 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C., sec. 136 et seq., and the Oil Pollution Act of 1990,
33 U.S.C. sec. 2701 et seq., as such laws have been amended or supplemented, and
the regulations promulgated pursuant thereto, and all analogous state or local
statutes. As used in this Agreement, "Environmental Liabilities" with respect to
any person means any and all liabilities of or relating to such person or any of
its subsidiaries (including any entity which is, in whole or in part, a
predecessor of such person or any of such subsidiaries), whether vested or
unvested, contingent or fixed, actual or potential, known or unknown, which (i)
arise under or relate to matters covered by Environmental Laws and (ii) relate
to actions occurring or conditions existing on or prior to the Closing Date. As
used in this Agreement, "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes, but is not limited to,
petroleum, petroleum products, friable asbestos, urea formaldehyde and
polychlorinated biphenyls.
2.21 Material Agreements. (a) Except as disclosed in the LIN Disclosure Letter,
from and after the date of filing of the LIN SEC Document, to the date of this
Agreement, neither LIN nor any of its subsidiaries has entered into any
contract, agreement or other document or instrument (other than this Agreement)
that would be required to be filed with the SEC or any material amendment,
modification or waiver under any contract, agreement or other document or
instrument (other than any such amendments, modifications or waivers entered
into following the date of this Agreement in connection with the transactions
contemplated hereby) that was previously filed with the SEC or would be required
to be so filed.
(b) Except as filed as an exhibit to the LIN SEC Document or as set forth in the
LIN Disclosure Letter, to the date of this Agreement, neither LIN nor any of its
subsidiaries is a party to or has entered into or made any material amendment or
modification to or granted any material waiver under the following
(collectively, the "Material Agreements"): (A) any network affiliation agreement
for any LIN Licensed Facility or LIN LMA
I-17
Facility (a "Network Affiliation Agreement"), (B) any material sports
broadcasting agreement (a "Sports Agreement"), (C) any main transmitter site or
main studio lease for any LIN Licensed Facility or LIN LMA Facility, (D) any
agreement pursuant to which LIN agrees to provide programming to a LIN LMA
Facility, or pursuant to which LIN has either a contingent programming
obligation or the right to purchase the assets of a LIN LMA Facility or any
shares of capital stock of any corporation holding any assets relating to a LIN
LMA Facility (an "LMA Agreement"), or (E) any partnership or joint venture
agreement obligating LIN to contribute cash in excess of $200,000 per year.
(c) Each of the Material Agreements is valid and enforceable against LIN in
accordance with its terms, and there is no default under any Material Agreements
either by LIN or any of its subsidiaries which is a party to such Material
Agreements or, to the knowledge of LIN, by any other party thereto, and no event
has occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by LIN or, to the knowledge of LIN, any other
party thereto, in any such case in which such default or event could reasonably
be expected to have a LIN Material Adverse Effect. In addition, neither LIN nor
any subsidiary of LIN is in material breach of any Network Affiliation
Agreement, Sports Agreement or LMA Agreement (including any breach which would
give rise to a right to terminate any such agreement). To the date of this
Agreement, neither LIN nor any subsidiary of LIN has received any written notice
(or to the knowledge of LIN any other notice) of default or termination under
any Material Agreement, and to the knowledge of LIN, there exists no basis for
any assertion of a right of default or termination under such agreements. To the
date of this Agreement, neither LIN nor any subsidiary of LIN has received any
written notice (or to the knowledge of LIN any other notice) of the exercise of
a put option or other right pursuant to which LIN or any of its subsidiaries
would be obligated to purchase capital stock or assets relating to any LIN LMA
Facility.
2.22 Tangible Property. All of the assets of LIN and its Significant
Subsidiaries are in good operating condition, reasonable wear and tear excepted,
and usable in the ordinary course of business, except where the failure to be in
such condition or so usable could not, individually or in the aggregate,
reasonably be expected to have a LIN Material Adverse Effect.
2.23 NBC Station Venture. To the knowledge of LIN, except as disclosed in the
LIN SEC Document, since the date of the most recent financial statements of LIN
Holdings contained in the LIN SEC Document, there has been no material adverse
change in the business, properties, results of operations, or condition
(financial or otherwise) of Station Venture Holdings, LLC (a minority equity
investment of one of LIN's subsidiaries) and its subsidiaries, taken as a whole,
that could reasonably be expected to have a LIN Material Adverse Effect.
2.24 No Other Representations and Warranties. Except for the representations
and warranties made by LIN as expressly set forth in this Agreement or in any
certificate or document delivered pursuant this Agreement, neither LIN nor any
of its affiliates has made and shall not be construed as having made to
Chancellor or to any affiliate thereof any representation or warranty of any
kind.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHANCELLOR
Chancellor represents and warrants to LIN as follows:
3.1 Organization, Standing and Corporate Power. Each of Chancellor and the
Chancellor Significant Subsidiaries (as defined below) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. Each of
Chancellor and the Chancellor Significant Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to be so qualified could not reasonably be
expected to have a material adverse effect on the business, properties, results
of operations, or condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole (other than as a result of changes in
general economic conditions or in economic conditions generally affecting the
radio broadcasting industry) (a "Chancellor Material Adverse Effect").
Chancellor has delivered to LIN complete and correct copies of its Certificate
of Incorporation and Bylaws, as amended to the date of this Agreement. For
purposes of this Agreement, a "Chancellor Significant Subsidiary" means any
subsidiary of Chancellor that would constitute a "significant subsidiary" within
the meaning of Rule 1-02 of Regulation S-X of the SEC.
3.2 Capital Structure. The authorized capital stock of Chancellor consists of
(i) 75,000,000 shares of Chancellor Class A Common Stock, none of which are
issued and outstanding, (ii) 200,000,000 shares of Chancellor Common Stock and
(iii) 50,000,000 shares of preferred stock, $0.01 par value, of which (x)
2,200,000 shares have been designated as 7% Convertible Preferred Stock and (y)
6,000,000 shares have been designated as $3.00 Convertible Exchangeable
Preferred Stock. At the close of business on July 6, 1998: (i) 142,288,959
shares of Chancellor Common Stock were issued and outstanding, 14,160,810 shares
of Chancellor Common Stock were reserved for issuance pursuant to outstanding
options or warrants to purchase Chancellor Common Stock which have been granted
to directors, officers or employees of Chancellor or others ("Chancellor Stock
Options"), 18,059,088 shares of Chancellor Common Stock were reserved for
issuance upon the conversion of the Chancellor Convertible Preferred Stock, and
no shares of Chancellor Common Stock were held as treasury shares by Chancellor
or any subsidiary of Chancellor; (ii) 2,200,000 shares of Chancellor 7%
Convertible Preferred Stock were issued and outstanding; (iii) 6,000,000 shares
of Chancellor $3.00 Convertible Preferred Stock were issued and outstanding; and
(iv) no shares of Chancellor Convertible Preferred Stock were held as treasury
shares by Chancellor or any subsidiary of Chancellor. Except as set forth above,
at the close of business on July 6, 1998, no shares of capital stock or other
equity securities of Chancellor were authorized, issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of Chancellor are, and
all shares which may be issued pursuant to Chancellor's stock option plans, as
amended to the date hereof (the "Chancellor Stock Option Plans"), or upon the
exercise of outstanding Chancellor Stock Options or upon the conversion of
outstanding shares of Chancellor Convertible Preferred Stock will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. No bonds, debentures, notes or other indebtedness
of Chancellor or any subsidiary of Chancellor having the right to vote (or
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convertible into, or exchangeable for, securities having the right to vote) on
any matters on which the stockholders of Chancellor or any subsidiary of
Chancellor may vote are issued or outstanding. All the outstanding shares of
capital stock of each subsidiary of Chancellor have been validly issued and are
fully paid and nonassessable and (except for the shares of 12 1/4% Series A
Senior Cumulative Exchangeable Preferred Stock, $0.01 par value, of Chancellor
Media Corporation of Los Angeles, a Delaware corporation (the "Chancellor
Operating Subsidiary")), are owned by Chancellor, by one or more wholly-owned
subsidiaries of Chancellor or by Chancellor and one or more such wholly-owned
subsidiaries, free and clear of all Liens, except for Liens arising out of the
senior credit facility of Chancellor Operating Subsidiary and those that,
individually or in the aggregate, could not reasonably be expected to have a
Chancellor Material Adverse Effect. Except as set forth above and in the
Chancellor Stockholders Agreement (as defined in Section 6.2(d)) (which
restricts the transfer of shares of Chancellor Common Stock by the parties to
the Chancellor Stockholders Agreement in certain circumstances), and except for
certain provisions of the Certificate of Incorporation of Chancellor relating to
"alien ownership" of the Chancellor Common Stock, neither Chancellor nor any
subsidiary of Chancellor has any outstanding option, warrant, subscription or
other right, agreement or commitment that either (i) obligates Chancellor or any
subsidiary of Chancellor to issue, sell or transfer, repurchase, redeem or
otherwise acquire or vote any shares of the capital stock of Chancellor or any
Chancellor Significant Subsidiary or (ii) restricts the transfer of Chancellor
Common Stock. Since the close of business on July 6, 1998 to the date hereof,
neither Chancellor nor any subsidiary of Chancellor has issued any capital stock
or securities or other rights convertible into or exercisable or exchangeable
for shares of such capital stock, other than shares of Chancellor Common Stock
issued upon the exercise of Chancellor Stock Options outstanding on July 6, 1998
or upon the conversion of shares of Chancellor Convertible Preferred Stock
outstanding on July 6, 1998.
3.3 Authority; Noncontravention. Chancellor has the requisite corporate power
and authority to enter into this Agreement and, subject to the approval of its
stockholders as set forth in Section 4.2(b) with respect to the approval of this
Agreement and the consummation of the Merger and the issuance of shares of
Chancellor Common Stock therein (the "Chancellor Stockholders Approval"), to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Chancellor and the consummation by Chancellor of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Chancellor, subject, in the case of the Merger
and the issuance of shares of Chancellor Common Stock therein, the Chancellor
Stockholders Approval. This Agreement has been duly executed and delivered by
Chancellor and, assuming this Agreement constitutes the valid and binding
agreement of each of the other parties hereto, constitutes a valid and binding
obligation of Chancellor, enforceable against it in accordance with its terms
except that the enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions hereof will not, (i) conflict with any of the provisions of
the Certificate of Incorporation or Bylaws of Chancellor or the comparable
documents of any subsidiary of Chancellor, (ii) subject to the governmental
filings and other matters referred to in the following sentence, conflict with,
result in a breach of or default (with or without notice or
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lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a material benefit
under, or require the consent of any person under, any indenture or other
agreement, permit, concession, franchise, license or similar instrument or
undertaking to which Chancellor or any of its subsidiaries is a party or by
which Chancellor or any of its subsidiaries or any of their assets is bound or
affected, (iii) result in an obligation by Chancellor or any of its subsidiaries
to redeem, repurchase or retire (or offer to redeem, repurchase or retire) any
indebtedness of Chancellor or any of its subsidiaries outstanding as of the date
hereof or equity security of Chancellor or any of its subsidiaries outstanding
as of the date hereof, or (iv) subject to the governmental filings and other
matters referred to in the following sentence, contravene any law, rule or
regulation of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect, except, in the cases of the
foregoing clauses (ii) through (iv), for breaches that, individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect or to materially hinder Chancellor's ability to consummate the
transactions contemplated by this Agreement. No consent, approval or
authorization of, or declaration or filing with, or notice to, any Governmental
Entity which has not been received or made, is required by or with respect to
Chancellor or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Chancellor or the consummation by Chancellor of
the transactions contemplated hereby, except for (i) the filing of premerger
notification and report forms under the HSR Act with respect to the Merger and
the termination or earlier expiration of the applicable waiting period
thereunder, (ii) such filings with and approvals required by the FCC under the
Communications Act, including those required in connection with the acquisition
of control of the LIN FCC Licenses for the operation of the LIN Licensed
Facilities, (iii) the filing of a registration statement under the Securities
Act with respect to the issuance of shares of Chancellor Common Stock in the
Merger, (iv) a proxy statement to be filed with the SEC by Chancellor relating
to the Chancellor Stockholders Approval (such proxy statement, as amended or
supplemented from time to time, the "Proxy Statement/ Prospectus"), (v) any
filing required by the Nasdaq Stock Market with respect to the issuance of
shares of Chancellor Common Stock in the Merger and upon exercise of Assumed
Stock Options (as defined in Section 5.2(a)), (vi) the filing of such reports
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (vii) such filings and consents
as may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Merger or the other transactions contemplated by this Agreement, and (viii) such
filings as may be required in connection with statutory provisions and
regulations relating to real property transfer gains taxes and real property
transfer taxes.
3.4 Chancellor SEC Documents. (i) Chancellor and its predecessors have filed
all required reports, schedules, forms, statements and other documents with the
SEC since January 1, 1995 (such reports, schedules, forms, statements and other
documents and any other documents filed with the SEC and publicly available
prior to the date of this Agreement are hereinafter referred to as the
"Chancellor SEC Documents"); (ii) as of their respective dates, the Chancellor
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Chancellor SEC
Documents, and none of the Chancellor SEC Documents as of such dates
I-21
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and (iii) as of their respective dates, the consolidated financial
statements of Chancellor and its predecessors included in the SEC Documents
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Rule 10-01 of Regulation S-X) and fairly present, in all
material respects, the consolidated financial position of Chancellor and its
consolidated subsidiaries (or its predecessors and their respective consolidated
subsidiaries) as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (on the basis stated
therein and subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments).
3.5 Absence of Certain Changes or Events. Except as disclosed in the Chancellor
SEC Documents or except as disclosed in writing by Chancellor to LIN in a
disclosure letter (the "Chancellor Disclosure Letter") prior to the execution
and delivery of the Agreement, or as otherwise agreed to in writing after the
date hereof by LIN, or as expressly permitted by this Agreement, since the date
of the most recent audited financial statements included in the Chancellor SEC
Documents, Chancellor and its subsidiaries have conducted their business only in
the ordinary course, and there has not been (i) any change which could
reasonably be expected to have a Chancellor Material Adverse Effect (including
as a result of the consummation of the transactions contemplated by this
Agreement), (ii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
Chancellor's currently outstanding capital stock (other than the payment of
regular cash dividends on the Chancellor 7% Convertible Preferred Stock and
Chancellor $3.00 Convertible Preferred Stock, and other than the payment of
dividends (including accrued dividends) on the 12% Exchangeable Preferred Stock,
$0.01 par value, and 12 1/4% Series A Senior Cumulative Exchangeable Preferred
Stock, $0.01 par value, of Chancellor Operating Subsidiary, in each case in
accordance with usual record and payment dates (other than accrued and unpaid
dividends paid on the 12% Exchangeable Preferred Stock)), (iii) any split,
combination or reclassification of any of its outstanding capital stock or any
issuance or the authorization of any issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital stock,
(iv) (x) any granting by Chancellor or any of its subsidiaries to any director,
officer or other employee or independent contractor of Chancellor or any of its
subsidiaries of any increase in compensation or acceleration of benefits, except
in the ordinary course of business consistent with prior practice or as was
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents, (y) any
granting by Chancellor or any of its subsidiaries to any director, officer or
other employee or independent contractor of any increase in, or acceleration of
benefits in respect of, severance or termination pay, or pay in connection with
any change of control of Chancellor, except in the ordinary course of business
consistent with prior practice or as was required under any employment,
severance or termination agreements in effect as of the date of the most recent
audited financial statements included in the Chancellor SEC Documents or (z) any
entry by Chancellor or any of its subsidiaries into any employment,
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severance, change of control, or termination or similar agreement with any
director, executive officer or other employee or independent contractor other
than in the ordinary course of business consistent with past practices, or (v)
any change in accounting methods, principles or practices by Chancellor or any
of its subsidiaries materially affecting its assets, liability or business,
except insofar as may have been required by a change in generally accepted
accounting principles.
3.6 No Extraordinary Payments or Change in Benefits. Except as disclosed in the
Chancellor Disclosure Letter, no current or former director, officer, employee
or independent contractor of Chancellor or any of its subsidiaries is entitled
to receive any payment under any agreement, arrangement or policy (written or
oral) relating to employment, severance, change of control, termination, stock
options, stock purchases, compensation, deferred compensation, fringe benefits
or other employee benefits currently in effect (collectively, the "Chancellor
Benefit Plans"), nor will any benefit received or to be received by any current
or former director, officer, employee or independent contractor of Chancellor or
any of its subsidiaries under any Chancellor Benefit Plan be accelerated or
modified, as a result of or in connection with the execution and delivery of, or
the consummation of the transactions contemplated by, this Agreement.
3.7 Brokers. Except with respect to Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Wasserstein Perella & Co. ("Wasserstein"), all negotiations
relating to this Agreement and the transactions contemplated hereby have been
carried out by Chancellor directly with LIN without the intervention of any
person on behalf of Chancellor in such a manner as to give rise to any valid
claim by any person against Chancellor, LIN, the Surviving Corporation or any
subsidiary of any of them for a finder's fee, brokerage commission, or similar
payment. The Chancellor Disclosure Letter sets forth a written summary of the
terms of its agreements relating to the transactions contemplated by this
Agreement with Morgan Stanley and Wasserstein, and Chancellor has no other
agreements or understandings (written or oral) with respect to such services.
3.8 Opinion of Financial Advisor. Chancellor has received the opinion of
Wasserstein, dated the date hereof, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to Chancellor and the
holders of Chancellor Common Stock.
3.9 Absence of Undisclosed Liabilities. Except as disclosed in the Chancellor
SEC Documents and except for liabilities contemplated by this Agreement or
disclosed in the Chancellor Disclosure Letter, Chancellor and its subsidiaries
do not have any material indebtedness, obligations or liabilities of any kind
(whether accrued, absolute, contingent or otherwise) (i) required by GAAP to be
reflected on a consolidated balance sheet of Chancellor and its consolidated
subsidiaries or in the notes, exhibits or schedules thereto or (ii) which
reasonably could be expected to have a Chancellor Material Adverse Effect.
3.10 Litigation. Except as disclosed in the Chancellor SEC Documents, to the
date of this Agreement, there is no litigation, administrative action,
arbitration or other proceeding pending against Chancellor or any of its
subsidiaries or, to the knowledge of Chancellor, threatened that, individually
or in the aggregate, could reasonably be expected to (i) have a Chancellor
Material Adverse Effect or (ii) prevent, or significantly delay the consummation
of the transactions contemplated by this Agreement. Except as set forth in the
Chancellor SEC Documents, to the date of this Agreement, there is no judgment,
order, injunction or decree of any Governmental Entity outstanding against
Chancellor or
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any of its subsidiaries that, individually or in the aggregate, could reasonably
be expected to have any effect referred to in the foregoing clauses (i) and (ii)
of this Section 3.10.
3.11 Transactions with Affiliates. Other than the transactions contemplated by
this Agreement or except to the extent disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter, there have been no transactions,
agreements, arrangements or understandings between Chancellor or its
subsidiaries, on the one hand, and Chancellor's affiliates (other than
subsidiaries of Chancellor) or any other person, on the other hand, that would
be required to be disclosed under Item 404 of Regulation S-K under the
Securities Act.
3.12 Chancellor Common Stock. The shares of Chancellor Common Stock to be
issued in the Merger will be, upon delivery against receipt of the shares of LIN
Common Stock for which such shares will be issued in accordance with Section 1.8
of this Agreement, duly authorized, validly issued, fully paid and
nonassessable. The shares of Chancellor Common Stock to be issued upon exercise
of the Assumed Stock Options (as defined in Section 5.2(a)) will be, upon
delivery of the exercise price therefor in accordance with the terms of the LIN
Stock Option Plan and agreements pursuant to which such Assumed Stock Options
were issued, duly authorized, validly issued, fully paid and nonassessable.
3.13 Voting Requirements. The affirmative vote of a majority of the outstanding
shares of Chancellor Common Stock entitled to vote with respect to the approval
of the Merger and the issuance of shares of Chancellor Common Stock therein is
the only vote of the holders of any class or series of Chancellor's capital
stock necessary to approve this Agreement and the transactions contemplated by
this Agreement.
3.14 FCC Qualification. Chancellor and its subsidiaries are fully qualified
under the Communications Act to be the transferees of control of the LIN FCC
Licenses. Except as disclosed in the Chancellor Disclosure Letter, Chancellor is
not aware of any facts or circumstances relating to the FCC qualifications of
Chancellor or any of its subsidiaries that would prevent the FCC's granting the
FCC Form 315 Transfer of Control Application to be filed with respect to the
Merger.
3.15 Employee Arrangements and Benefit Plans. (a) Except as set forth in the
Chancellor SEC Documents or in the Chancellor Disclosure Letter and except as
could not, individually or in the aggregate, reasonably be expected to have a
Chancellor Material Adverse Effect: (A) each Chancellor Benefit Plan has been
administered and is in compliance with the terms of such plan and all applicable
laws, rules and regulations, (B) no "reportable event" (as such term is used in
section 4043 of ERISA) (other than those events for which the 30 day notice has
been waived pursuant to the regulations), "prohibited transaction" (as such term
is used in section 406 of ERISA or section 4975 of the Code) or "accumulated
funding deficiency" (as such term is used in section 412 or 4971 of the Code)
has heretofore occurred with respect to any Chancellor Benefit Plan and (C) each
Chancellor Benefit Plan intended to qualify under Section 401(a) of the Code has
received a favorable determination from the IRS regarding its qualified status
and no notice has been received from the IRS with respect to the revocation of
such qualification.
(b) To the date of this Agreement, there is no litigation or administrative or
other proceeding involving any Chancellor Benefit Plan nor has Chancellor or its
subsidiaries received written notice that any such proceeding is threatened, in
each case where an
I-24
adverse determination could reasonably be expected to have a Chancellor Material
Adverse Effect. Neither Chancellor nor any of its subsidiaries has incurred,
nor, to the best of Chancellor's knowledge, is reasonably likely to incur any
withdrawal liability with respect to any "multiemployer plan" (within the
meaning of section 3(37) of ERISA) which remains unsatisfied in an amount which
could reasonably be expected to have a Chancellor Material Adverse Effect. The
termination of, or withdrawal from, any Chancellor Benefit Plan or multiemployer
plan to which Chancellor or its subsidiaries contributes, on or prior to the
Closing Date, will not subject Chancellor or any of its subsidiaries to any
liability under Title IV of ERISA that could reasonably be expected to have a
Chancellor Material Adverse Effect.
3.16 Tax Matters. Except as set forth in the Chancellor Disclosure Letter, (A)
Chancellor and each of its subsidiaries have timely filed with the appropriate
taxing authorities all material Tax Returns required to be filed through the
date hereof and will timely file any such material Tax Returns required to be
filed on or prior to the Closing Date (except those under valid extension) and
all such Tax Returns are and will be true and correct in all material respects,
(B) all Taxes of Chancellor and each of its subsidiaries shown to be due on the
Tax Returns described in (A) above have been or will be timely paid or
adequately reserved for in accordance with GAAP (except to the extent that such
Taxes are being contested in good faith), (C) no material deficiencies for any
Taxes have been proposed, asserted or assessed against Chancellor or any of its
subsidiaries that have not been fully paid or adequately provided for in the
appropriate financial statements of Chancellor and its subsidiaries, and no
power of attorney with respect to any Taxes has been executed or filed with any
taxing authority and no material issues relating to Taxes have been raised in
writing by any governmental authority during any presently pending audit or
examination, (D) Chancellor and its subsidiaries are not now subject to audit by
any taxing authority and no waivers of statutes of limitation with respect to
the Tax Returns have been given by or requested in writing from Chancellor or
any of its subsidiaries, (E) there are no material liens for Taxes (other than
for Taxes not yet due and payable) on any assets of Chancellor or any of its
subsidiaries, (F) neither Chancellor nor any of its subsidiaries is a party to
or bound by (nor will any of them become a party to or bound by) any tax
indemnity, tax sharing, tax allocation agreement, or similar agreement,
arrangement or practice with respect to Taxes, (G) neither Chancellor nor any of
its subsidiaries has ever been a member of an affiliated group of corporations
within the meaning of Section 1504 of the Code, other than the affiliated group
of which Chancellor is the common parent, (H) neither Chancellor nor any of its
subsidiaries has filed a consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state or local law) or agreed to have Section 341(f)(2) of the Code (or any
corresponding provisions of state or local law) apply to any disposition of any
asset owned by Chancellor or any of its subsidiaries, as the case may be, (I)
neither Chancellor nor any of its subsidiaries has agreed to make, nor is any
required to make, any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method or otherwise, (J) Chancellor and its subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
withholding of Taxes and (K) no property owned by Chancellor or any of its
subsidiaries (i) is property required to be treated as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the
meaning of
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Section 168(h)(l) of the Code; or (iii) is tax exempt bond financed property
within the meaning of Section 168(g) of the Code.
3.17 Intellectual Property. Except as set forth in the Chancellor Disclosure
Letter and except to the extent that the inaccuracy of any of the following (or
the circumstances giving rise to such inaccuracy), individually or in the
aggregate, could not reasonably be expected to have a Chancellor Material
Adverse Effect: (a) Chancellor and each of its subsidiaries owns, or is licensed
to use (in each case, free and clear of any Liens), all Intellectual Property
used in or necessary for the conduct of its business as currently conducted; (b)
the use of any Intellectual Property by Chancellor and its subsidiaries does not
infringe on or otherwise violate the rights of any person and is in accordance
with any applicable license pursuant to which Chancellor or any subsidiary
acquired the right to use any Intellectual Property; and (c) to the knowledge of
Chancellor, no person is challenging, infringing on or otherwise violating any
right of Chancellor or any of its subsidiaries with respect to any Intellectual
Property owned by and/or licensed to Chancellor or its subsidiaries; and (d)
neither Chancellor nor any of its subsidiaries has received any written notice
of any pending claim with respect to any Intellectual Property used by
Chancellor and its subsidiaries and to its knowledge no Intellectual Property
owned and/or licensed by Chancellor or its subsidiaries is being used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property.
3.18 Environmental Matters. Except as disclosed in the Chancellor SEC Documents
or in the Chancellor Disclosure Letter and except as could not reasonably be
expected to have a Chancellor Material Adverse Effect (i) the operations of
Chancellor and its subsidiaries have been and are in compliance with all
Environmental Laws and with all Permits required by Environmental Laws, (ii) to
the date of this Agreement, there are no pending or, to the knowledge of
Chancellor, threatened, Actions under or pursuant to Environmental Laws against
Chancellor or its subsidiaries or involving any real property currently or, to
the knowledge of Chancellor, formerly owned, operated or leased by Chancellor or
its subsidiaries, (iii) Chancellor and its subsidiaries are not subject to any
Environmental Liabilities, and, to the knowledge of Chancellor, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the knowledge of Chancellor,
formerly owned, operated or leased by Chancellor or its subsidiaries or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of Chancellor all
real property operated or leased by Chancellor or its subsidiaries is free of
contamination from Hazardous Material and (v) there is not now, nor, to the
knowledge of Chancellor, has there been in the past, on, in or under any real
property owned, leased or operated by Chancellor or any of its predecessors (a)
any underground storage tanks, above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (b) any asbestos-containing materials, (c) any
polychlorinated biphenyls, or (d) any radioactive substances.
3.19 No Other Representations and Warranties. Except for the representations
and warranties made by Chancellor as expressly set forth in this Agreement or in
any certificate or document delivered pursuant this Agreement, neither
Chancellor nor any of its affiliates has made and shall not be construed as
having made to LIN or to any affiliate thereof any representation or warranty of
any kind.
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ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Preparation of Form S-4 and Proxy Statement/Prospectus; Information
Supplied.
(a) As soon as practicable following the date of this Agreement, Chancellor
shall prepare and file with the SEC (i) a preliminary Proxy Statement/Prospectus
and (ii) a Registration Statement on Form S-4 (the "Form S-4") with respect to
the registration of the issuance of shares of Chancellor Common Stock in the
Merger, of which the Proxy Statement/Prospectus will form a part. Chancellor
shall use its reasonable best efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing.
Chancellor shall use its best efforts to cause the Proxy Statement/ Prospectus
to be mailed to Chancellor's stockholders and LIN's stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Chancellor shall also take any action (other than qualifying to do business in
any jurisdiction in which it is not now so qualified or take any action that
would subject it to the service of process in suits, other than as to matters
and transactions relating to the Form S-4, in any jurisdiction where it is not
so subject) required to be taken under any applicable state securities laws in
connection with the issuance of the Chancellor Common Stock in the Merger and
LIN shall furnish all information concerning itself and the holders of shares of
LIN Common Stock as may be reasonably requested in connection with any such
action.
(b) LIN agrees and represents and warrants that the information supplied or to
be supplied by it specifically for inclusion or incorporation by reference in
the (i) Form S-4 will not, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement/Prospectus will not, at the
date it is first mailed to Chancellor's stockholders or at the time of the
Chancellor Stockholders Meeting (as defined in Section 4.2), contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading.
(c) Chancellor agrees and represents and warrants that the information supplied
or to be supplied by it specifically for inclusion or incorporation by reference
in (i) the Form S-4 will not, at the time the Form S-4 is filed with the SEC, at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or (ii) the Proxy Statement/Prospectus will not, at the
date it is first mailed to Chancellor's stockholders or at the time of the
Chancellor Stockholders Meeting, contain any statement which, at the time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier
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communication with respect to the solicitation of a proxy for the same meeting
or subject matter thereof which has become false or misleading. Chancellor
agrees that the Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder and Chancellor agrees that the Proxy Statement/Prospectus will comply
as to form in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder, except in each case with
respect to statements made or incorporated by reference in the Form S-4 or the
Proxy Statement/Prospectus supplied by LIN specifically for inclusion or
incorporation by reference therein as to which Chancellor assumes no
responsibility.
4.2 Stockholder Approval. (a) LIN agrees that it will take all action necessary
in accordance with applicable law and its Certificate of Incorporation and
Bylaws to convene a meeting of its common stockholders or obtain the written
consent of its common stockholders for the approval of this Agreement and the
Merger. LIN will use its best efforts to obtain the LIN Stockholders Approval as
soon as practicable after the date hereof. Without limiting the generality of
the foregoing, LIN agrees that its obligations pursuant to the first two
sentences of this Section 4.2(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to Chancellor of any
Acquisition Proposal (as defined in Section 4.5(a) below) or (ii) the withdrawal
or modification by the Board of Directors of LIN of its approval or
recommendation of this Agreement or the Merger. The Board of Directors of LIN
shall recommend to its stockholders that they vote in favor of the adoption of
this Agreement and the Merger.
(b) Chancellor agrees that it will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and Bylaws to convene a
meeting of its stockholders (the "Chancellor Stockholders Meeting") to submit
this Agreement, together with the affirmative recommendation of Chancellor's
Board of Directors, to the Chancellor's stockholders so that they may consider
and vote upon the approval of this Agreement, the Merger and the issuance of
shares of Chancellor Common Stock therein. Chancellor will use its best efforts
to hold the Chancellor Stockholders Meeting as soon as practicable after the
date hereof and to obtain the favorable votes of its stockholders. The Board of
Directors of Chancellor shall recommend to its stockholders that they vote in
favor of the adoption of this Agreement and the Merger.
4.3 Access to Information; Confidentiality. Upon reasonable notice, each of
Chancellor and LIN shall, and shall cause each of its respective subsidiaries
to, afford to the other parties hereto and to their respective officers,
employees, counsel, financial advisors and other representatives reasonable
access during normal business hours during the period prior to the Effective
Time to all its properties, books, contracts, commitments, personnel and records
and, during such period, each of Chancellor and LIN shall, and shall cause each
of its respective subsidiaries to, furnish as promptly as practicable to the
other parties hereto such information concerning its business, properties,
financial condition, operations and personnel as such parties may from time to
time reasonably request. Except as required by law or the rules of regulations
of the Nasdaq Stock Market or any national stock exchange, each of Chancellor
and LIN agree that, until the earlier of (i) two years from the date of this
Agreement and (ii) the Effective Time, each of Chancellor and LIN and their
respective subsidiaries will not, and will cause its respective directors,
officers, partners, employees, agents, accountants, counsel, financial advisors
and other representatives and affiliates (collectively, "Representatives") not
to, disclose any nonpublic
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information obtained from Chancellor or LIN, as the case may be, to any other
person, in whole or in part, other than to its Representatives in connection
with an evaluation of the transactions contemplated by this Agreement, and each
of Chancellor and LIN and their respective subsidiaries will not, and will cause
its respective Representatives not to, use any of such nonpublic information to
directly or indirectly divert or attempt to divert any business, customer or
employee of the other.
4.4 Public Announcements. Chancellor and LIN agree that each of them will
consult with each of the others before issuing, and will provide each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law, court process or by obligations pursuant to rules of any
national securities exchange or The Nasdaq Stock Market (to the extent
applicable to them).
4.5 Acquisition Proposals. (a) From and after the date hereof, without the
prior written consent of Chancellor, LIN shall not, and shall not authorize or
permit any of its subsidiaries to, and shall direct and use its best efforts to
cause its and its subsidiaries' Representatives not to, (i) directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information or assistance) or take any other action to facilitate any inquiries
or the making of any proposal which constitutes or may reasonably be expected to
lead to an Acquisition Proposal (as defined below) or (ii) enter into or
participate in any discussions or negotiations regarding any Acquisition
Proposal. LIN shall immediately cease and terminate any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any persons
conducted heretofore by it or its Representatives with respect to the foregoing.
LIN agrees not to release any third party from, or waive any provision of, any
standstill agreement to which it is a party or any confidentiality agreement
between it and another person who has made, or who may reasonably be considered
likely to make, an Acquisition Proposal. LIN agrees that it will notify
Chancellor orally and in writing, of any such inquiries, offers or proposals
(including, without limitation, the terms and conditions of any such proposal).
(b) Neither the Board of Directors of LIN nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Chancellor, the approval or recommendation by such Board of Directors or
committee thereof of this Agreement or the Merger, (ii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal or (iii) cause LIN to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement related to any Acquisition Proposal.
(c) For purposes of this Agreement, an "Acquisition Proposal" means any proposal
or offer from any person (other than Chancellor or any of its subsidiaries) for
a tender or exchange offer, merger, consolidation, other business combination,
recapitalization, liquidation, dissolution or similar transaction involving LIN
or any LIN Significant Subsidiary, or any proposal to acquire in any manner a
substantial equity interest in, or an substantial portion of the assets of, LIN
or a LIN Significant Subsidiary; provided that an Acquisition Proposal shall not
include any direct or indirect acquisition or disposition of television
broadcast stations (or the assets thereof) disclosed in the LIN Disclosure
Letter.
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4.6 Consents, Approvals and Filings. Chancellor and LIN will make and cause
their respective subsidiaries and, to the extent necessary, their other
affiliates to make all necessary filings, including, without limitation, those
required under the HSR Act, the Securities Act, the Exchange Act, and the
Communications Act (including filing an application with the FCC for the
transfer of control of the LIN FCC Licenses, which the parties shall file as
soon as practicable (and in any event not more than 20 business days) after the
date of this Agreement), in order to facilitate the prompt consummation of the
Merger and the other transactions contemplated by this Agreement. In addition,
Chancellor and LIN will each use its best efforts, and will cooperate fully and
in good faith with each other, (i) to comply as promptly as practicable with all
governmental requirements applicable to the Merger and the other transactions
contemplated by this Agreement, and (ii) to obtain as promptly as practicable
all necessary permits, orders or other consents of Governmental Entities and
consents of all third parties necessary for the consummation of the Merger and
the other transactions contemplated by this Agreement, including without
limitation, the consent of the FCC to the transfer of control of the LIN FCC
Licenses. Each of Chancellor and LIN shall use its best efforts to promptly
provide such information and communications to Governmental Entities as such
Governmental Entities may reasonably request. Each of the parties hereto shall
provide to the other parties copies of all applications in advance of filing or
submission of such applications to Governmental Entities in connection with this
Agreement and shall make such revisions thereto as reasonably requested by each
other party hereto. Each of the parties hereto shall provide to the other
parties the opportunity to participate in all meetings and material
conversations with Governmental Entities with respect to the matters
contemplated by this Agreement.
4.7 Affiliates Letters. Prior to the Closing Date, LIN shall deliver to
Chancellor a letter identifying all persons who, at the time the Merger is
submitted for approval to the stockholders, may be deemed to be an "affiliate"
of such party for purposes of Rule 145 under the Securities Act. LIN shall use
its best efforts to cause each such person to deliver to Chancellor on or prior
to the Closing Date a written agreement substantially in the form attached as
Exhibit A hereto.
4.8 Nasdaq Listing. Chancellor shall use its best efforts to cause the shares
of Chancellor Common Stock to be issued in the Merger and upon the exercise of
the Assumed Stock Options (as defined in Section 5.2(a)) to be approved for
quotation in the Nasdaq Stock Market.
4.9 Indemnification. The Certificate of Incorporation of the Surviving
Corporation shall contain the provisions with respect to indemnification
contained in the certificate of incorporation of LIN, as in effect on the date
hereof, and none of such provisions shall be amended, repealed or otherwise
modified for a period of six years after the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at any time
prior to the Effective Time were directors or officers of LIN, or any of its
respective subsidiaries (the "Indemnified Parties") in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law. Chancellor will cause to be maintained for a
period of not less than six years from the Effective Time LIN's current
directors' and officers' insurance and indemnification policies to the extent
that they provide coverage for events occurring prior to the Effective Time (the
"D&O Insurance")
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for all persons who are directors and executive officers of LIN on the date of
this Agreement, so long as the annual premium therefor would not be in excess of
250% of the last annual premium paid prior to the date of this Agreement;
provided, however, that Chancellor or its subsidiaries may, in lieu of
maintaining such existing D&O Insurance as provided above, cause coverage to be
provided under any policy maintained for the benefit of Chancellor and its
subsidiaries so long as the terms thereof are not less advantageous to the
beneficiaries thereof than the existing D&O Insurance. The provisions of this
Section 4.9 are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party, his heirs and his personal representatives and shall be
binding on all successors and assigns of Chancellor, the Surviving Corporation
and LIN.
4.10 Letter of Chancellor's Accountants. Chancellor shall use its reasonable
best efforts to cause to be delivered to LIN a letter of PricewaterhouseCoopers,
LLP, Chancellor's independent public accountants, and any other independent
public accountants whose report would be required to be included in the Form S-4
pursuant to the rules and regulations under the Securities Act, each dated a
date within two business days before the date on which the Form S-4 shall become
effective and an additional letter from each of them dated a date within two
business days before the Closing Date, each addressed to such party, in form and
substance reasonably satisfactory to LIN and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
4.11 Letter of LIN's Accountants. LIN shall use its reasonable best efforts to
cause to be delivered to Chancellor, a letter of PricewaterhouseCoopers, LLP,
LIN's independent public accountants, and any other independent public
accountants whose report would be required to be included in the Form S-4
pursuant to the rules and regulations under the Securities Act, each dated a
date within two business days before the date on which the Form S-4 shall become
effective and an additional letter from each of them dated a date within two
business days before the Closing Date, each addressed to such party, in form and
substance reasonably satisfactory to Chancellor and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
4.12 Employee Benefit Matters. Chancellor acknowledges and agrees that the LIN
Operating Subsidiary is bound by the terms of Section 5.4 of that certain Merger
Agreement, dated as of August 12, 1997, among LIN Holdings (formerly known as
Ranger Holdings Corp.) and the LIN Operating Subsidiary (successor by merger to
each of Ranger Acquisition Company and LIN Television Corporation) (as amended,
the "LIN/Ranger Merger Agreement"), with respect to employee benefit matters set
forth therein in effect at the time of the consummation of the transactions
contemplated by the LIN/Ranger Merger Agreement, and Chancellor agrees that it
shall take all such action as is necessary or desirable to cause the LIN
Operating Subsidiary to satisfy such obligations thereunder.
4.13 Termination of Stockholders Agreement. Prior to Closing, LIN shall use its
reasonable best efforts to obtain the consent of all parties to the Stockholders
Agreement to terminate such Stockholders Agreement at the Effective Time. At any
special meeting of LIN stockholders (or written consent in lieu thereof) called
for the purpose of obtaining the LIN Stockholders Approval, LIN agrees that the
vote on the Merger will be structured so that a vote in favor of the Merger by a
LIN stockholder will constitute a
I-31
waiver of each LIN stockholder of rights with respect to the Stockholders
Agreement following the Effective Time.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
5.1 Conduct of Business.
(a) Except as expressly contemplated by this Agreement, during the period from
the date of this Agreement to the Effective Time, LIN shall, and shall cause its
subsidiaries to, act and carry on their respective businesses in the ordinary
course of business and, to the extent consistent therewith, use reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve the goodwill
of those engaged in material business relationships with them. Without limiting
the generality of the foregoing, during the period from the date of this
Agreement to the Effective Time and except as set forth in the LIN SEC Document
or the LIN Disclosure Letter, LIN shall not, and shall not permit any of its
subsidiaries to, without the prior consent of Chancellor (which shall not be
unreasonably delayed or withheld):
(i) (w) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or its subsidiaries' outstanding capital stock (except dividends and
distributions by a direct or indirect wholly owned subsidiary of LIN to its
parent), (x) split, combine or reclassify any of its outstanding capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its outstanding capital
stock, (y) except in connection with the termination of the employment of
any employees, purchase, redeem or otherwise acquire any shares of
outstanding capital stock or any rights, warrants or options to acquire any
such shares, or (z) issue, sell, grant, pledge or otherwise encumber any
shares of its capital stock, any other equity securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, equity securities or convertible securities (other than (A) upon
the exercise of LIN Stock Options outstanding on the date of this Agreement
or issued under clause (C) below, (B) pursuant to employment agreements or
other contractual arrangements in effect on the date of this Agreement, (C)
LIN Stock Options granted after the date of this Agreement to purchase up
to an aggregate amount of (1) 31,100,000 shares of LIN Common Stock, minus
(2) that number of shares of LIN Common Stock for which LIN Stock Options
have been granted on or prior to the date of this Agreement, at an exercise
per share of at least $1.00, which are to be issued to existing or future
employees and (D) issuances of stock of any direct or indirect wholly owned
Subsidiary of LIN to its parent);
(ii) amend its Certificate of Incorporation, Bylaws or other comparable
charter or organizational documents;
(iii) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
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(iv) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets that are material to
LIN and its subsidiaries, taken as whole;
(v) (x) other than working capital borrowings in the ordinary course of
business and consistent with past practices, incur any indebtedness for
borrowed money or guarantee any such indebtedness of another person, other
than indebtedness owing to or guarantees of indebtedness owing to LIN or
any of its direct or indirect wholly-owned subsidiaries or (y) make any
material loans or advances to any other person, other than to LIN or any of
its direct or indirect wholly-owned subsidiaries and other than routine
advances to employees consistent with past practices;
(vi) make any Tax election or settle or compromise any Tax liability that
could reasonably be expected to be material to LIN and its subsidiaries,
taken as a whole or change its Tax or accounting methods, policies,
practice or procedures, except as required by GAAP;
(vii) pay, discharge, settle or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of LIN (for this purpose meaning LIN Holdings) included in
the LIN SEC Document or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice;
(viii) make any material commitments or agreements for capital expenditures
or capital additions or betterments except as materially consistent with
the budget for capital expenditures as of the date of this Agreement, in
the ordinary course of business consistent with past practices;
(ix) except as may be required by law:
(A) other than in the ordinary course of business and consistent with
past practices, make any representation or promise, oral or written, to
any employee or former director, officer or employee of LIN or any of
its subsidiaries which is inconsistent with the terms of any LIN Benefit
Plan;
(B) other than in the ordinary course of business, make any change to,
or amend in any way, the contracts, salaries, wages, or other
compensation of any director, employee or any agent or consultant of LIN
or any of its subsidiaries other than routine changes or amendments that
are required under existing contracts;
(C) except for renewals in the ordinary course of business consistent
with past practices, adopt, enter into, amend, alter or terminate,
partially or completely, any LIN Benefit Plan, or any election made
pursuant to the provisions of any LIN Benefit Plan, to accelerate any
payments, obligations or vesting schedules under any LIN Benefit Plan;
or
(D) other than in the ordinary course of business consistent with past
practices, approve any general or company-wide pay increases for
employees;
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(x) except in the ordinary course of business, modify, amend or terminate
any material agreement, permit, concession, franchise, license or similar
instrument to which LIN or any of its subsidiaries is a party or waive,
release or assign any material rights or claims thereunder; or
(xi) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Notwithstanding the foregoing, nothing in this Section 5.1 shall prohibit
(i) LIN Television of Texas, L.P. ("LIN Texas") from entering into an agreement
with Dallas Sports Holding Company ("DSHC") relating to the assets used or
useful in the operation of television station KXTX-TV (Dallas, TX) (the "KXTX
Transaction"), including without limitation, in a federal income tax-free
transaction, (A) the assignment by LIN Texas to DSHC of its rights under that
certain Option and Put Agreement, dated as of May 31, 1994, as amended on
December 24, 1997, among the LIN Operating Subsidiary, LIN Texas, KXTX of Texas,
Inc. ("KXTX-Texas"), and KXTX, Inc. (the "KXTX Option"), and the assignment of
its rights under the local marketing agreement relating thereto, or (B) the
exercise of the KXTX Option by LIN and subsequent sale of the capital stock of
KXTX-Texas to DSHC, in exchange for (Y) $50 million liquidation preference of
DSHC convertible preferred stock, the terms of which shall include a 6% annual
paid-in-kind dividend, payable semiannually, and permit LIN Texas to convert
such shares of convertible preferred stock into common stock of DSHC upon the
consummation of a firm commitment underwritten initial public offering of the
shares of common stock of DSHC at a conversion price per share equal to the
public offering price of such common stock, or (Z) such other consideration that
is mutually agreed by each of Chancellor and LIN to be of comparable or superior
value or (ii) any amendments to the M&O Agreement and Financial Advisory
Agreement (each as defined in Section 6.3(f)) upon the terms set forth in
Section 6.3(f) or any amendment under the LIN Stock Option Plan to include the
LIN Substitute Stock Options.
5.2 Stock Options; Phantom Stock Plan. (a) At the Effective Time, each
outstanding LIN Stock Option that is outstanding and unexercised immediately
prior to the Effective Time shall be deemed to have been assumed by Chancellor,
without further action by Chancellor, the Surviving Corporation or the holders
of such options, and shall thereafter be deemed to be an option to acquire
shares of Chancellor Common Stock in such amount and at the exercise price
provided below and otherwise having the same terms and conditions as are in
effect immediately prior to the Effective Time (except to the extent that such
terms and conditions may be altered in accordance with their terms as a result
of the transactions contemplated hereby) (such LIN Stock Options assumed by
Chancellor being the "Assumed Stock Options"):
(i) the number of shares of Chancellor Common Stock to be subject to the
new option shall be equal to the product of (x) the number of shares of LIN
Common Stock subject to the original option and (y) the Exchange Ratio
(rounded to the nearest 1/100 of a share);
(ii) the exercise price per share of Chancellor Common Stock under the new
option shall be equal to (x) the exercise price per share of LIN Common
Stock under the original option divided by (y) the Exchange Ratio (rounded
to the nearest $0.01); and
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(iii) in accordance with the terms of the LIN Stock Option Plan under which
the LIN Stock Options were issued, fractional shares of any Assumed Stock
Options resulting from the adjustments set forth in this Section 5.2(a)
shall be eliminated.
The adjustments provided herein to any options which are "incentive stock
options" (as defined in Section 422 of the Code) shall be effected in a manner
consistent with Section 424(a) of the Code.
(b) LIN shall take all actions reasonably necessary (including, if appropriate,
by way of obtaining the written consent of optionholders) to ensure that the
consummation of the Merger is not deemed to constitute a "change of control" (or
transaction of similar import) with respect to such stock options or otherwise
result, in and of itself, in the acceleration of any LIN Stock Option
outstanding immediately prior to the Effective Time, and to ensure that all such
options shall be exercisable after the Merger solely for shares of Chancellor
Common Stock.
(c) At the Effective Time, Chancellor shall assume the LIN Stock Option Plan,
with such changes thereto as may be necessary to reflect the consummation of the
transactions contemplated hereby. Nothing in this Section 5.2(c) shall be
construed to prevent Chancellor in any way from terminating or freezing the
benefits under any such plans (subject to the rights of the holders of the
Assumed Stock Options thereunder) and adopting one or more new stock option
plans, as approved by the Board of Directors of Chancellor following the
Effective Time.
(d) Promptly following the Effective Time, Chancellor shall use its reasonable
best efforts to file with the SEC a Registration Statement on Form S-8 (or an
amendment to any such form of Chancellor currently on file with the SEC that is
available therefor) (the "Form S-8") for the purpose of registering the shares
of Chancellor Common Stock issuable upon the exercise of the Assumed Stock
Options, and Chancellor shall use its reasonable best efforts to have the Form
S-8 (or any post-effective amendment thereto) declared effective under the
Securities Act as soon as practicable after such filing.
(e) At the Effective Time, Chancellor shall assume the Phantom Stock Plan. Each
Phantom Stock Unit outstanding under the Phantom Stock Plan that is outstanding
immediately prior to the Effective Time shall be appropriately adjusted to
reflect the Exchange Ratio as if each such Phantom Stock Unit was one share of
LIN Common Stock immediately prior to the Effective Time and was converted into
the appropriate fraction of a share of Chancellor Common Stock pursuant to
Section 1.8 of this Agreement. To the extent shares of Chancellor Common Stock
are issued in satisfaction of Phantom Stock Units, Chancellor shall use its
reasonable best efforts to register such shares on Form S-8.
5.3 Other Actions. Neither Chancellor nor LIN shall, and neither of them shall
permit any of their respective subsidiaries to, take any action that would, or
that could reasonably be expected to, result in any of the conditions of the
Merger set forth in Article VI not being satisfied.
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ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Stockholder Approval. The LIN Stockholders Approval and Chancellor
Stockholders Approval shall have been obtained.
(b) FCC Order. The FCC shall have issued an order (the "FCC Order") approving
the transfers of control pursuant to the Merger of the LIN FCC Licenses for the
operation of the LIN Licensed Facilities without the imposition of any
conditions or restrictions that could reasonably be expected to have a LIN
Material Adverse Effect, and which FCC Order has not been reversed, stayed,
enjoined, set aside or suspended and with respect to which no timely request for
stay, petition for reconsideration or appeal has been filed and as to which the
time period for filing of any such appeal or request for reconsideration or for
any sua sponte action by the FCC with respect to the FCC Order has expired, or,
in the event that such a filing or review sua sponte has occurred, as to which
such filing or review shall have been disposed of favorably to the grant of the
FCC Order and the time period for seeking further relief with respect thereto
shall have expired without any request for such further relief having been filed
or review initiated.
(c) Governmental and Regulatory Consents. All required consents, approvals,
permits and authorizations to the consummation of the Merger shall be obtained
from any Governmental Entity (other than the FCC) whose consent, approval,
permission or authorization is required by reason of a change in law after the
date of this Agreement, unless the failure to obtain such consent, approval,
permission or authorization could not reasonably be expected to have a LIN
Material Adverse Effect, or to materially and adversely affect the validity or
enforceability of this Agreement or the Merger.
(d) HSR Act. The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have otherwise
expired.
(e) No Injunctions or Restraints. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger shall be in effect; provided, however, that the party invoking
this condition shall use its reasonable best efforts to have any such order or
injunction vacated.
(f) Nasdaq Listing. The shares of Chancellor Common Stock issuable pursuant to
the Merger shall have been approved for quotation in the Nasdaq Stock Market.
(g) Form S-4. The Form S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
6.2 Conditions to Obligations of LIN. The obligation of LIN to effect the
Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Chancellor contained in this Agreement shall have been true and correct on the
date of this Agreement and shall be true and correct at and as of the Closing
Date as though made at
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and as of such time (except to the extent that any such representations and
warranties expressly relate only to an earlier time, in which case they shall
have been true and correct at such earlier time); provided, however, that this
condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
(without regard to any materiality or Chancellor Material Adverse Effect
qualifier(s) contained therein) could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise) of Chancellor and its
subsidiaries, considered as a whole, and except to the extent that any
inaccuracies of such representations and warranties are a result of changes in
the United States financial markets generally or in national, regional or local
economic conditions generally, or are a result of matters arising after the date
hereof that affect the broadcast industry generally. Chancellor shall have
delivered to LIN a certificate dated as of the Closing Date, signed by a senior
executive officer of Chancellor, to the effect set forth in this Section 6.2(a).
(b) Performance of Obligations of Chancellor. Chancellor shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and LIN shall have received a
certificate signed on behalf of Chancellor by a senior executive officer to such
effect.
(c) Tax Opinion. LIN shall have received an opinion of Vinson & Elkins L.L.P.,
dated as of the Closing Date, to the effect that (i) the Merger will constitute
a reorganization under Section 368(a) of the Code, (ii) Chancellor and LIN will
each be a party to the reorganization under Section 368(b) of the Code, and
(iii) no gain or loss will be recognized by the stockholders of LIN upon the
receipt of Chancellor Common Stock in exchange for LIN Common Stock pursuant to
the Merger except with respect to any cash received in lieu of Fractional Shares
or any cash received in respect of Dissenting Shares. In rendering such opinion,
Vinson & Elkins L.L.P. shall receive and may rely upon representations contained
in certificates of Chancellor, LIN and certain stockholders of LIN.
(d) Chancellor Stockholders Agreement. Chancellor shall have amended or caused
to be amended the terms of that certain Amended and Restated Stockholders
Agreement, dated as of February 14, 1996, as amended by the First Amendment to
Amended and Restated Stockholders Agreement dated as of September 4, 1997, among
Chancellor and the stockholders parties thereto (the "Chancellor Stockholders
Agreement"), in order that (A) in the event that the holders of LIN Common Stock
receive shares of Chancellor Common Stock which are deemed to be "restricted
securities" (within the meaning of Rule 144 under the Securities Act) in the
Merger, all holders of LIN Common Stock at the Effective Time shall be deemed
"Holders" thereunder and the shares of Chancellor Common Stock received by them
in the Merger shall be "Registrable Shares" thereunder, or (B) in the event that
holders of LIN Common Stock receive shares of Chancellor Common Stock which are
not deemed to be "restricted securities" (within the meaning of Rule 144 under
the Securities Act) in the Merger, the holders of LIN Common Stock at the
Effective Time that, after giving effect to the Merger and the issuance of
shares of Chancellor Common Stock therein, will own at least 1% of the
outstanding shares of Chancellor Common Stock immediately following the
Effective Time, shall be (and their transferees shall be) deemed "Holders"
thereunder and shares of Chancellor Common Stock received in the Merger shall be
"Registrable Shares" thereunder.
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6.3 Conditions to Obligations of Chancellor. The obligations of Chancellor to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of LIN
contained in this Agreement shall have been true and correct on the date of this
Agreement and shall be true and correct at and as of the Closing Date as though
made at and as of such time (except to the extent that any such representations
and warranties expressly relate only to an earlier time, in which case they
shall have been true and correct at such earlier time); provided, however, that
this condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
(without regard to any materiality or LIN Material Adverse Effect qualifier(s)
contained therein) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) of LIN (or, following the
Effective Time, the Surviving Corporation) and its subsidiaries, considered as a
whole, and except to the extent that any inaccuracies of such representations
and warranties are a result of changes in the United States financial markets
generally or in national, regional or local economic conditions generally, or
are a result of matters arising after the date hereof that affect the broadcast
industry generally. LIN shall have delivered to Chancellor a certificate dated
as of the Closing Date, signed by a senior executive officer of LIN, to the
effect set forth in this Section 6.3(a).
(b) Performance of Obligations of LIN. LIN shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing Date, and Chancellor shall have received a certificate
signed on behalf of LIN by a senior executive officer of LIN to such effect.
(c) Tax Opinion. Chancellor shall have received an opinion of Weil, Gotshal &
Manges LLP, dated as of the Closing Date, to the effect that (i) the Merger will
constitute a reorganization under Section 368(a) of the Code, (ii) Chancellor
and LIN will each be a party to the reorganization under Section 368(b) of the
Code, and (iii) no gain or loss will be recognized by Chancellor or LIN by
reason of the Merger. In rendering such opinion, Weil, Gotshal & Manges LLP
shall receive and may rely upon representations contained in certificates of
Chancellor, LIN and certain stockholders of LIN.
(d) KXTX Transaction. In the event that LIN Texas shall have consummated the
KXTX Transaction, LIN Texas, LIN or one of its other subsidiaries shall have
received the convertible preferred stock of DSHC on substantially the terms set
forth in Section 5.1(b)(i) or such other consideration that is deemed by the
Board of Directors of Chancellor to be of comparable or superior value.
(e) Network Affiliation Agreements. LIN and its subsidiaries shall have received
any necessary consents required as a result of the Merger and transactions
contemplated by this Agreement with respect to each Network Affiliation
Agreement relating to a LIN Licensed Facility, a true and correct list of which
is set forth in the LIN Disclosure Letter.
(f) Financial Services Agreements. LIN and certain of its subsidiaries and Hicks
Muse shall have entered into an amendment to each of the Monitoring and
Oversight Agreement (the "M&O Agreement") and the Financial Advisory Agreement
(the "Financial Advisory Agreement") that provides (i) the M&O Agreement will
terminate at the Effective Time and, in consideration therefor, LIN shall
deliver to Hicks Muse at Closing a one-time cash payment of $11,000,000, (ii)
Hicks Muse will receive a fee from LIN of
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$11,000,000 in cash, payable at Closing, in satisfaction of its services
performed under the Financial Advisory Agreement in connection with the Merger,
and (iii) the Financial Advisory Agreement would terminate with respect to LIN
(and as successor in the Merger, Chancellor) but not its subsidiaries (the "LIN
Entities") and would be amended to provide that following the Closing Date (A)
Hicks Muse will be the exclusive financial advisor to the LIN Entities and (B)
Hicks Muse will receive a "market fee" for the services it provides, provided
that (1) Hicks Muse would not receive a fee in a transaction in which the Chief
Executive Officer of Chancellor does not elect to retain an outside financial
advisor to any of the LIN Entities, and (2) if the Chief Executive Officer of
Chancellor and Hicks Muse mutually agree that an additional financial advisor to
any of the LIN Entities would be appropriate in a given transaction, Hicks Muse
will split its fee equally with such co-advisor unless otherwise agreed to
between the Chief Executive Officer of Chancellor and Hicks Muse.
(g) Dissenting Shares. Holders of not more than 5% of the outstanding shares of
LIN Common Stock shall have properly demanded appraisal rights for their shares
under the Delaware Code.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger abandoned as
follows:
(a) at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of LIN or Chancellor, by
mutual written consent of Chancellor and LIN;
(b) at any time prior to the Effective Time, whether before or after approval of
this Agreement and the Merger by the stockholders of LIN or Chancellor:
(i) by Chancellor if the LIN Stockholders Approval shall not have been
obtained after submission by the Board of Directors of LIN of this
Agreement and the Merger for approval by the common stockholders of LIN at
a special meeting called for such purpose or by written consent of such
stockholders in accordance with Section 4.2(a);
(ii) by LIN if the Chancellor Stockholders Approval shall not have been
obtained after submission by the Board of Directors of Chancellor of this
Agreement and the Merger for approval by the common stockholders of
Chancellor at a special meeting called for such purpose in accordance with
Section 4.2(b);
(iii) by Chancellor or LIN if the Merger shall not have been consummated on
or before June 30, 1999, unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the party
seeking to terminate this Agreement;
(iv) by Chancellor or LIN if any Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable;
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(v) by Chancellor or LIN in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Agreement which (A) would give rise to the failure of a condition set forth
in Section 6.2(a) or (b) or Section 6.3(a) or (b), as applicable, and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (a "Material Breach"),
provided that the terminating party is not then in Material Breach of any
representation, warranty, covenant or other agreement contained in this
Agreement; or
(vi) by Chancellor if LIN shall have breached the requirements of Section
4.5 hereof, unless Chancellor shall at such time be in Material Breach of
any representation, warranty, covenant or other agreement contained in this
Agreement.
7.2 Effect of Termination. (a) In the event that Chancellor or LIN terminates
this Agreement as provided in Section 7.1(a), 7.1(b)(iii) or 7.1(b)(iv), this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Chancellor or LIN, other than the last sentence of
Section 4.3 and Sections 2.10, 3.7, 7.2 and 10.2.
(b) In the event that this Agreement is terminated by Chancellor pursuant to
Section 7.1(b)(i), 7.1(b)(vi) or 7.1(b)(v), LIN shall promptly reimburse
Chancellor for all substantiated out-of-pocket costs and expenses incurred by
them in connection with this Agreement and the transactions contemplated hereby,
including, without limitation, costs and expenses of accountants, attorneys and
financial advisors. In the event that this Agreement is terminated by LIN
pursuant to Section 7.1(b)(ii) or 7.1(b)(v), Chancellor shall promptly reimburse
LIN for all substantiated out-of-pocket costs and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, costs and expenses of accountants, attorneys and
financial advisors. This Agreement shall not be deemed to have been validly
terminated until all payments contemplated by this Section 7.2(b) shall have
been made in full. In the event of a termination pursuant to Sections 7.1(b)(v)
or 7.1(b)(vi), the reimbursement of expenses by the breaching party pursuant to
this Section 7.2(b) shall be the parties sole remedy unless the termination
resulted from a willful material breach of the representations, warranties,
covenants or other agreements in this Agreement, in which case the non-breaching
party may seek damages or any other appropriate remedy at law or in equity.
7.3 Amendment. Subject to the applicable provisions of the Delaware Code, at
any time prior to the Effective Time, the parties hereto may modify or amend
this Agreement, by written agreement executed and delivered by duly authorized
officers of the respective parties; provided, however, that after the LIN
Stockholders Approval has been obtained, no amendment shall be made which
reduces the consideration payable in the Merger or adversely affects the rights
of LIN's stockholders hereunder without the approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
7.4 Extension; Consent; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this
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Agreement or (c) subject to Section 7.3, waive compliance with any of the
agreements or conditions of the other parties contained in this Agreement or
consent to any action requiring consent pursuant to this Agreement. Any
agreement on the part of a party to any such extension, waiver or consent shall
be valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension, Consent or Waiver. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension, consent or waiver pursuant to
Section 7.4 shall, in order to be effective, require in the case of Chancellor
or LIN, action by its Board of Directors or a duly authorized committee of its
Board of Directors.
ARTICLE VIII
SURVIVAL OF PROVISIONS
8.1 Survival. The representations and warranties of Chancellor and LIN made in
this Agreement, or in any certificate, respectively, delivered by any of them
pursuant to this Agreement, will not survive the Closing.
ARTICLE IX
NOTICES
9.1 Notices. All notices and other communications under this Agreement must be
in writing and will be deemed to have been duly given if delivered, telecopied
or mailed, by certified mail, return receipt requested, first-class postage
prepaid, to the parties at the following addresses:
If to Chancellor, to:
Chancellor Media Corporation
433 East Las Colinas Boulevard
Suite 1130
Irving, Texas 75039
Attention: Jeffrey A. Marcus
Facsimile: (972) 879-3671
with copies to:
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
Attention: Michael A. Saslaw
Facsimile: (214) 746-7777
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and
Thompson & Knight, P.C.
1700 Pacific Avenue
Suite 3300
Dallas, Texas 75201
Attention: Sam P. Burford, Jr.
Facsimile: (214) 969-1751
If to LIN, to:
LIN Television Corporation
4 Richmond Square
Suite 200
Providence, Rhode Island 02906
Attention: Gary R. Chapman
Facsimile: (401) 454-2817
and
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313
with copies to:
Vinson & Elkins L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael D. Wortley
Facsimile: (214) 999-7732
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article IX will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
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ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. Except for the documents executed by Chancellor and LIN
pursuant hereto, this Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter of this Agreement, and
this Agreement (including the exhibits hereto and other documents delivered in
connection herewith) contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
10.2 Expenses. Except as provided in Section 7.2, whether or not the Merger is
consummated, each of Chancellor and LIN will pay its own costs and expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby. In the event of any
lawsuit or other judicial proceeding brought by either party to enforce any of
the provisions of this Agreement, the losing party in such proceeding shall
reimburse the prevailing party's fees and expenses incurred in connection
therewith, including the fees and expenses of its attorneys.
10.3 Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which will constitute one
and the same instrument and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
10.4 No Third Party Beneficiary. Except for Sections 4.9 and 4.12, the terms
and provisions of this Agreement are intended solely for the benefit of the
parties hereto, and their respective successors or assigns, and it is not the
intention of the parties to confer third-party beneficiary rights upon any other
person.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by,
the parties and their respective successors and assigns.
10.7 Headings, Gender, Etc. The headings used in this Agreement have been
inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender are deemed to include each
other gender; (b) words using the singular or plural number also include the
plural or singular number, respectively; (c) the terms "hereof," "herein,"
"hereby," "hereto," and derivative or similar words refer to this entire
Agreement; (d) the terms "Article" or "Section" refer to the specified Article
or Section of this Agreement; (e) all references to "dollars" or "$" refer to
currency of the United States of America; (f) the term "person" shall include
any natural person, corporation, limited liability company, general partnership,
limited partnership, or other entity, enterprise, authority or business
organization; and (g) the term "or" is not exclusive.
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10.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of LIN or Chancellor under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable; (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and (c)
the remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision or
by its severance herefrom.
10.9 No Recourse Against Others. No past, present or future director, officer,
employee, stockholder, incorporator or partner, as such, of Chancellor, LIN or
the Surviving Corporation shall have any liability for any obligations of
Chancellor, LIN or the Surviving Corporation under this Agreement or for any
claim based on, in respect of or by reason of such obligations or their
creation.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the
duly authorized officers of Chancellor and LIN effective as of the date first
written above.
CHANCELLOR MEDIA CORPORATION
By: /s/ JEFFREY A. MARCUS
-----------------------------------
Name: Jeffrey A. Marcus
Title: President and Chief
Executive Officer
RANGER EQUITY HOLDINGS CORPORATION
By: /s/ MICHAEL J. LEVITT
-----------------------------------
Name: Michael J. Levitt
Title: Vice President
I-44
EXHIBIT A
, 1998
Chancellor Media Corporation
433 East Las Colinas Boulevard, Suite 1130
Irving, Texas 75039
Ladies and Gentlemen:
I have been advised that I have been identified as a possible "affiliate" of
Ranger Equity Holdings Corporation, a Delaware corporation (the "Company"), as
that term is defined for purposes of paragraphs (c) and (d) of Rule 145 of the
General Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933 (the
"Securities Act"), although nothing contained herein should be construed as an
admission of such fact.
Pursuant to the terms of an Agreement and Plan of Merger dated as of July 7,
1998 (the "Merger Agreement"), by and among the Company and Chancellor Media
Corporation, a Delaware corporation ("Chancellor"), the Company will be merged
with and into Chancellor (the "Merger"), with Chancellor continuing as the
surviving corporation in the Merger. As a result of the Merger, I will receive
Merger Consideration (as defined in the Merger Agreement), including shares of
Common Stock, $0.01 par value, of Chancellor ("Chancellor Common Stock") in
exchange for shares of Common Stock, $.01 par value, of the Company
(collectively, the "Shares") owned by me at the effective time of the Merger as
determined pursuant to the Merger Agreement.
A. In connection therewith, I represent, warrant and agree that:
1. I shall not make any sale, transfer or other disposition of the
Chancellor Common Stock I receive as a result of the Merger in violation of
the Securities Act or the Rules and Regulations.
2. I have been advised that the issuance of Chancellor Common Stock to me
as a result of the Merger has been registered with the Commission under the
Securities Act on a Registration Statement on Form S-4. However, I have
also been advised that, if at the time the Merger was submitted for a vote
of the stockholders of the Company I am determined to have been an
"affiliate" of the Company, any sale by me of the shares of Chancellor
Common Stock I receive as a result of the Merger must be (i) registered
under the Securities Act, (ii) made in conformity with the provisions of
Rule 145 promulgated by the Commission under the Securities Act or (iii)
made pursuant to a transaction which, in the opinion of counsel reasonably
satisfactory to Chancellor or as described in a "no action" or interpretive
letter from the staff of the Commission, is not required to be registered
under the Securities Act.
3. I have carefully read this letter and the Merger Agreement and have
discussed the requirements of the Merger Agreement and other limitations
upon the sale, transfer or other disposition of the shares of Chancellor
Common Stock to be received by me, to the extent I have felt necessary,
with my counsel or with counsel for the Company.
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B. Furthermore, in connection with the matters set forth herein, I understand
and agree that:
1. I understand that Chancellor will give stop transfer instructions to its
transfer agents with respect to the Chancellor Common Stock and that the
certificates for the Chancellor Common Stock issued to the undersigned, or
any substitutions therefor, will bear a legend substantially to the
following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, MAY APPLY. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT, DATED 1998, BETWEEN THE REGISTERED HOLDER
HEREOF AND CHANCELLOR MEDIA CORPORATION, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF CHANCELLOR MEDIA CORPORATION."
2. I also understand that unless the transfer by the undersigned of any
Chancellor Common Stock has been registered under the Securities Act or is
a sale made in conformity with the provisions of Rule 145, Chancellor
reserves the right to place the following legend on the certificates issued
to any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, MAY APPLY. THE SECURITIES
HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF SUCH ACT
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
It is understood and agreed that the legends set forth in paragraphs (B) 1 and 2
above shall be removed by delivery of new certificates without such legend if
Chancellor receives an opinion of counsel reasonably satisfactory to Chancellor
to the effect that such legend is not required for purposes of the Securities
Act. It is understood and agreed that such legends and the stop orders referred
to above will be removed if (i) one year shall have elapsed from the date the
undersigned acquired Chancellor Common Stock received in the Merger and the
provisions of Rule 145(d)(2) under the Securities Act are then available to the
undersigned, (ii) two years shall have elapsed from the date the undersigned
acquired Chancellor Common Stock received in the Merger and the provisions of
Rule 145(d)(3) under the Securities Act are then available to the undersigned,
or (iii) Chancellor has received under the Securities Act an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to Chancellor, to the
effect that the
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restrictions imposed by Rule 145 under the Securities Act no longer apply to the
undersigned.
Except pursuant to any contractual registration rights, if any, that I have on
the date hereof or may hereafter enter into, Chancellor shall be under no
further obligation to register the sale, transfer or other disposition of the
shares of Chancellor Common Stock received by me as a result of the Merger or to
take any other action necessary in order to make compliance with an exemption
from registration available.
Very truly yours,
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ANNEX II
Wasserstein Perella & Co., Inc.
31 West 52nd Street
New York, New York 10019-6118
WASSERSTEIN Telephone 212-969-2700
PERELLA & CO Fax 212-969-7836
July 7, 1998
Special Committee of the Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard, Suite 1130
Irving, TX 75039
Members of the Special Committee of the Board:
You have asked us to advise you with respect to the fairness, from a financial
point of view, to Chancellor Media Corporation ("Chancellor") and the holders of
Chancellor common stock of the Exchange Ratio (as defined below) provided for
pursuant to the terms of the Agreement and Plan of Merger, dated as of July 7,
1998 (the "Merger Agreement"), between Chancellor and Ranger Equity Holdings
Corporation ("LIN"). The Merger Agreement provides for, among other things, a
merger of LIN with and into Chancellor (the "Merger") pursuant to which each
outstanding share of common stock, par value $0.01 per share, of LIN (other than
any such shares held in the treasury of LIN) will be converted into 0.0300
shares of common stock, par value $0.01 per share, of Chancellor (the "Exchange
Ratio"). The terms and conditions of the Merger are set forth in more detail in
the Merger Agreement.
In connection with rendering our opinion, we have reviewed a draft of the Merger
Agreement, and for purposes hereof, we have assumed that the final form of this
document will not differ in any material respect from the draft provided to us.
We have also reviewed and analyzed certain publicly available business and
financial information relating to LIN and Chancellor for recent years and
interim periods to date, as well as certain internal financial and operating
information, including financial forecasts, analyses and projections prepared by
or on behalf of LIN and Chancellor and provided to us for purposes of our
analysis, and we have met with management of LIN and Chancellor to review and
discuss such information and, among other matters, LIN's and Chancellor's
business, operations, assets, financial condition and future prospects.
We have reviewed and considered certain financial data relating to LIN, and
certain financial and stock market data relating to Chancellor, and we have
compared that data with similar data for certain other companies, the securities
of which are publicly traded, that we believe may be relevant or comparable in
certain respects to LIN or Chancellor or one or more of their respective
businesses or assets, and we have reviewed and considered
New York Chicago Dallas Frankfurt Houston London Los Angeles Paris San
Francisco Tokyo
July 7, 1998
Page 2
the financial terms of certain recent acquisitions and business combination
transactions in the television broadcasting industry specifically, and in other
industries generally, that we
believe to be reasonably comparable to the Merger or otherwise relevant to our
inquiry. We have also performed such other financial studies, analyses, and
investigations and reviewed such other information as we considered appropriate
for purposes of this opinion. We reviewed a draft of a term sheet (the "Term
Sheet") regarding the proposed $50,000,000 aggregate amount of Series A
Preferred Stock that LIN would receive from Dallas Sports Holding Company.
In our review and analysis and in formulating our opinion, we have assumed and
relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We also have assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses provided to us,
and we have assumed that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of LIN's and Chancellor's management. We
express no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they are based. In addition, we have not reviewed any
of the books and records of LIN or Chancellor, or assumed any responsibility for
conducting a physical inspection of the properties or facilities of LIN or
Chancellor, or for making or obtaining an independent valuation or appraisal of
the assets or liabilities of LIN or Chancellor, and no such independent
valuation or appraisal was provided to us. We note that the Merger is intended
to qualify as a tax free reorganization for United States Federal tax purposes,
and we have assumed that the Merger will so qualify. We also have assumed that
obtaining all regulatory and other approvals and third party consents required
for consummation of the Merger will not have an adverse impact on Chancellor or
LIN or on the anticipated benefits of the Merger, and we have assumed that the
transactions described in the Merger Agreement will be consummated without
waiver or modification of any of the material terms or conditions contained
therein by any party thereto. We also have assumed that the transaction
described in the Term Sheet will be consummated as described therein and
otherwise in a customary manner. Our opinion is necessarily based on economic
and market conditions and other circumstances as they exist and can be evaluated
by us as of the date hereof. We are not expressing any opinion herein as to the
prices at which any securities of Chancellor or LIN will actually trade at any
time.
In the ordinary course of our business, we may actively trade the debt and
equity securities of LIN and Chancellor for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
WP&Co. advised Evergreen Media Corporation in its merger with Chancellor
Broadcasting Corporation, which transaction resulted in the formation of
Chancellor. WP&Co. advised Evergreen Media Corporation in its joint acquisition
with Chancellor of Viacom Radio Group. WP&Co. advised the predecessor of LIN,
LIN Television Corporation, and the Independent Directors of the Board of
Directors of LIN Television Corporation in its merger with an affiliate of Hicks
Muse Tate and Furst, Inc.
July 7, 1998
Page 3
Our opinion addresses only the fairness, from a financial point of view, to
Chancellor and the holders of Chancellor common stock of the Exchange Ratio
provided for pursuant to the Merger Agreement, and we do not express any views
on any other terms of the Merger. Specifically, our opinion does not address
Chancellor's underlying business decision to effect the transactions
contemplated by the Merger Agreement. We have advised the Special Committee of
the Board of Directors of Chancellor (the "Special Committee") that, based on
the terms of our engagement by the Company we do not believe that any person
(including any stockholder of the Company), other than the Special Committee,
has the legal right to rely upon this letter to support any claim against us
arising under applicable state law and that, should any such claim be brought
against us by any such person, this assertion would be raised as a defense. In
the absence of applicable state law, the availability of such a defense would be
resolved by a court of competent jurisdiction. Resolution of the question of the
availability of such a defense, however, would have no effect on the rights and
responsibilities of the Special Committee under applicable state law.
Furthermore, the availability of such defense to us would have no effect on the
rights and responsibilities of either us or the Special Committee under federal
securities laws.
It is understood that this letter is solely for the benefit and use of the
Special Committee of the Board of Directors of Chancellor in its consideration
of the Merger and may not be relied upon by any other person, and except for
inclusion in its entirety in any registration statement or proxy statement
required to be circulated to shareholders of Chancellor relating to the Merger,
may not be disseminated, quoted, referred to or reproduced at any time or in any
manner without our prior written consent. This opinion does not constitute a
recommendation to any shareholder as to how such holder should vote with respect
to the Merger, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, it is our opinion that, as of the date hereof, the
Exchange Ratio provided for pursuant to the Merger Agreement is fair to
Chancellor and the holders of Chancellor common stock from a financial point of
view.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
WASSERSTEIN PERELLA & CO., INC. SIGNATURE
ANNEX III
[MORGAN STANLEY LETTERHEAD]
July 7, 1998
Board of Directors
Chancellor Media Corporation
433 East Las Colinas Boulevard
Irving, TX 75039
Members of the Board:
We understand that Chancellor Media Corporation ("Chancellor") and Ranger Equity
Holdings Corporation ("LIN" or the "Company") have entered into an Agreement and
Plan of Merger, dated as of July 7, 1998 (the "Merger Agreement"), which
provides, among other things, for the merger (the "Merger") of LIN with and into
Chancellor. Pursuant to the Merger, LIN will become a wholly-owned subsidiary of
Chancellor and each outstanding share of common stock, par value $.01 per share,
of LIN (the "LIN Common Stock"), other than shares held as treasury shares and
other than Dissenting Shares, will be converted into the right to receive 0.0300
shares of Chancellor common stock, par value $.01 per share, (the "Chancellor
Common Stock"). The total number of shares of Chancellor Common Stock (assuming
no exercise of dissenters' rights) to be issued pursuant to the Merger Agreement
is approximately 17.7 million shares (the "Consideration"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement. We
also understand that Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse")
currently owns approximately 72% of the LIN Common Stock and approximately 10%
of the Chancellor Common Stock.
You have asked for our opinion as to whether the Consideration to be paid by
Chancellor pursuant to the Merger Agreement is fair from a financial point of
view to Chancellor.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Chancellor and the Company;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Chancellor and the Company prepared by the
management of Chancellor and the Company, respectively;
(iii) reviewed certain financial projections prepared by the management of
Chancellor and the Company, respectively;
(iv) discussed the past and current operations and financial condition and
the prospects of Chancellor and of the Company with senior executives of
Chancellor and the Company, respectively;
(v) reviewed the reported prices and trading activity for the Chancellor
Common Stock;
(vi) compared the financial performance of Chancellor and the Company with
that of certain other comparable publicly-traded companies;
III-1
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) participated in discussions and negotiations among representatives
of Chancellor and the Company and their financial and legal advisors;
(ix) reviewed the Merger Agreement dated July 7, 1998 and certain related
documents; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Chancellor and
the Company. We have assumed that the Merger will take place in accordance with
the Merger Agreement and related documents. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Chancellor in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory or financing services for Chancellor, the Company, and Hicks
Muse and have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Chancellor and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Chancellor with the Securities and Exchange Commission
with respect to the Merger. In addition, we express no opinion or
recommendations as to how the holders of Chancellor Common Stock should vote at
the shareholders' meeting held in connection with the issuance of the Chancellor
Common Stock pursuant to the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be paid by Chancellor pursuant to the Merger Agreement is fair
from a financial point of view to Chancellor.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ PAUL J. TAUBMAN
--------------------------------------
Paul J. Taubman
Managing Director
III-2
ANNEX IV
[GREENHILL LETTERHEAD]
July 7, 1998
Board of Directors
Ranger Equity Holdings Corporation
One Richmond Square
Suite 230E
Providence, Rhode Island 02906
Members of the Board:
We understand that Ranger Equity Holdings Corporation ("Ranger") and Chancellor
Media Corporation ("Chancellor") have entered into an Agreement and Plan of
Merger, dated as of July 7, 1998 (the "Merger Agreement"), which provides, among
other things, for the merger of Ranger with and into Chancellor with Chancellor
as the surviving corporation (the "Merger"). Pursuant to the Merger, each issued
and outstanding share of common stock, $0.01 par value, of Ranger (the "Ranger
Common Stock"), other than shares of Ranger Common Stock held as treasury shares
by Ranger and other dissenting shares, shall be converted into the right to
receive 0.0300 shares of common stock, $0.01 par value, of Chancellor (the
"Merger Consideration"). The terms and conditions of the Merger are more fully
set forth in the Merger Agreement.
You have asked us to render an opinion as to whether, as of the date hereof, the
Merger Consideration is fair, from a financial point of view, to the
stockholders of Ranger. We have not been requested to opine as to, and our
opinion does not in any manner address the underlying business decision to
proceed with or effect the Merger.
For purposes of the opinion set forth herein, we have:
1. reviewed the Merger Agreement, the Disclosure Letter of Ranger, the
Disclosure Letter of Chancellor and the Voting Agreement among Ranger
and Chancellor, all dated July 7, 1998;
2. analyzed the structure of the Merger;
3. analyzed the value of the Merger Consideration against publicly
available information of other transactions that we deemed relevant;
4. analyzed the value of the Merger Consideration using the trading values
of television broadcasting companies that we deemed relevant;
5. reviewed Ranger financial information, including financial projections,
and operating information furnished to us by representatives of Ranger;
6. performed a discounted cash flow analysis of Ranger;
7. discussed the structure of the Merger as well as the business,
operations and prospects of Ranger with representatives of Ranger;
8. discussed the recent and near-term prospects, both business and
financial, for Chancellor, as well as the capital structure of
Chancellor with representatives of Chancellor;
9. reviewed certain publicly available financial and other information on
Chancellor; and
10. considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information supplied and otherwise made available to us
by representatives of Ranger and Chancellor for purposes of this opinion and
have further relied upon the assurances of the representatives of Ranger and
Chancellor that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading.
With respect to the financial projections of Ranger that have been furnished to
us, upon advice of the representatives of Ranger, we have assumed such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and good faith judgements of the management of
Ranger as to the future financial performance of Ranger and we relied upon such
projections in arriving at our opinion. We requested but were not provided with
financial projections for Chancellor. In arriving at our opinion, we have not
conducted a physical inspection of Ranger or Chancellor nor have we undertaken
an independent appraisal of the assets of Ranger or of the assets of Chancellor
nor are we expressing an opinion as to any aspect of the Merger other than the
fairness to the stockholders of Ranger of the Merger Consideration from a
financial point of view. In addition, we have assumed the Merger will be
consummated in accordance with the terms and conditions set forth in the Merger
Agreement. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We note that Robert F. Greenhill, Chairman of Greenhill &
Co., LLC owns 2 million common shares of Ranger, representing 0.3% of the fully
diluted common shares outstanding and that Greenhill & Co., LLC has acted in the
past as financial advisor to Chancellor with respect to matters unrelated to the
Merger.
It is understood that this letter is exclusively for the information of the
Board of Directors of Ranger and is rendered to the Board of Directors in
connection with its consideration of the Merger and may not be used for any
other purpose without our prior written consent, except that this opinion may be
included in its entirety in any filing made by Ranger with the Securities and
Exchange Commission. This opinion is not intended to be and does not constitute
a recommendation to the Board of Directors of Ranger as to whether it should
approve the Merger. Based upon and subject to the foregoing, we are of the
opinion on the date hereof that the Merger Consideration is fair, from a
financial point of view, to the stockholders of Ranger.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ SCOTT L. BOK
--------------------------------------
Name: Scott L. Bok
Title: Managing Director
ANNEX V
SECTION 262
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Appraisal Rights. (a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection (d)
of this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing pursuant to
sec.228 of this title shall be entitled to an appraisal by the Court of Chancery
of the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof:
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be
V-1
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are
V-2
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
V-3
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholder
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
V-4
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
V-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware ("DGCL")
empowers a Delaware corporation to indemnify any person who is, or is threatened
to be made, a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which he actually and reasonably incurred in
connection therewith.
Chancellor Media's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
Chancellor Media or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit.
Chancellor Media's Bylaws provide that Chancellor Media shall indemnify every
person who is or was a party or is or was threatened to be made a party to any
action suit, or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation or, while a director or officer or employee of the corporation,
is or was serving at the request of the corporation as a director, officer,
employee, agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonable incurred by him in connection with such action, suit or proceeding,
to the full extent permitted by applicable law.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
II-2
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
II-3
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
2.32(s) -- Asset Exchange Agreement,by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/ WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
II-4
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.51(yy) -- Stock Purchase and Merger Agreement, dated July 9, 1998,
by and among Chancellor Media Corporation, Chancellor
Mexico LLC, Grupo Radio Centro, S.A. De C.V., and the
Selling Shareholders.
2.52(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
II-5
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
II-6
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
II-7
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
II-8
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56* -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57* -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
12.1* -- Chancellor Media Corporation Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1* -- Subsidiaries of Chancellor Media Corporation.
23.1 -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
II-9
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
23.5* -- Consent of KPMG LLP, independent accountants.
23.6* -- Consent of Arthur Andersen LLP, independent accountants.
23.7* -- Consent of Ernst & Young LLP, independent accountants.
23.8* -- Consent of BDO Seidman, LLP, independent accountants.
23.9* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.10* -- Consent of Ernst & Young LLP, independent accountants.
23.11* -- Consent of Ernst & Young LLP, independent accountants.
23.12* -- Consent of Arthur Andersen LLP, independent accountants.
23.13* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.14* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.15* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.16* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
23.17* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
23.18* -- Consent of Greenhill & Co., LLC, financial advisor to the
Board of Directors of LIN.
23.19* -- Consent of Vinson & Elkins L.L.P.
24.1 -- Powers of Attorney (included on signature pages).
99.1* -- Certificate of Incorporation of Ranger Equity Holdings
Corporation.
99.2* -- Bylaws of Ranger Equity Holdings Corporation.
* Filed herewith.
+ To be filed by amendment.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-1, as amended (Reg. No. 33-60036), of
Evergreen Media Corporation ("Evergreen").
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreens Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreens Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
II-10
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of Evergreen Media Corporation of Los Angeles ("EMCLA").
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
II-11
(pp) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the CMCLA for the
fiscal year ended December 31, 1997.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated-by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
The Company hereby agrees to furnish supplementary a copy of any omitted
schedule or exhibit to the Commission upon request.
B. Financial Statement Schedules
All schedules have been omitted since the required information is either not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
C. Fairness Opinions
See Annex II, III and IV of the joint proxy statement/prospectus.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expense incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted against the
II-12
registrant by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
B. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
C. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
D. (1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933, as amended, and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on February 9, 1999.
CHANCELLOR MEDIA CORPORATION
By: /s/ JEFFREY A. MARCUS
------------------------------------
Jeffrey A. Marcus
Chief Executive Officer and
President
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jeffrey A.
Marcus and Thomas P. McMillin, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person and in his name, place and stead, in any and all capacities, to
sign any or all further amendments, including post-effective amendments, to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities and Exchange Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ THOMAS O. HICKS Chairman of the Board February 9, 1999
---------------------------------------------
Thomas O. Hicks
/s/ JEFFREY A. MARCUS Chief Executive Officer, February 9, 1999
--------------------------------------------- President and Director
Jeffrey A. Marcus (Principal Executive
Officer)
/s/ JAMES E. DE CASTRO Chief Operating Officer February 9, 1999
--------------------------------------------- and Director
James E. de Castro
II-14
SIGNATURES TITLE DATE
---------- ----- ----
/s/ THOMAS P. MCMILLIN Senior Vice President and February 9, 1999
--------------------------------------------- Chief Financial Officer
Thomas P. McMillin (Principal Financial
Officer and Principal
Accounting Officer)
/s/ THOMAS J. HODSON Director February 9, 1999
---------------------------------------------
Thomas J. Hodson
/s/ PERRY J. LEWIS Director February 9, 1999
---------------------------------------------
Perry J. Lewis
/s/ JOHN H. MASSEY Director February 9, 1999
---------------------------------------------
John H. Massey
/s/ MICHAEL J. LEVITT Director February 9, 1999
---------------------------------------------
Michael J. Levitt
/s/ LAWRENCE D. STUART, JR. Director February 9, 1999
---------------------------------------------
Lawrence D. Stuart, Jr.
/s/ STEVEN DINETZ Director February 9, 1999
---------------------------------------------
Steven Dinetz
/s/ VERNON E. JORDAN, JR. Director February 9, 1999
---------------------------------------------
Vernon E. Jordan, Jr.
/s/ J. OTIS WINTERS Director February 9, 1999
---------------------------------------------
J. Otis Winters
II-15
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.11(h) -- Agreement and Plan of Merger by and among Pyramid
Communications, Inc., Evergreen Media Corporation and
Evergreen Media/Pyramid Corporation dated as of July 14,
1995 (see table of contents for list of omitted exhibits
and schedules).
2.11A(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated September
7, 1995.
2.11B(i) -- Amendment to Plan and Agreement of Merger by and among
Pyramid Communications, Inc., Evergreen Media Corporation
and Evergreen Media/Pyramid Corporation dated January 11,
1996.
2.12(j) -- Purchase Agreement between Fairbanks Communications, Inc.
and Evergreen Media Corporation dated October 12, 1995
(see table of contents for list of omitted exhibits and
schedules).
2.13(n) -- Option Agreement dated as of January 9, 1996 between
Chancellor Broadcasting Company and Evergreen Media
Corporation (including Form of Advertising Brokerage
Agreement and Form of Asset Purchase Agreement).
2.14(o) -- Asset Purchase Agreement dated April 4, 1996 between
American Radio Systems Corporation and Evergreen Media
Corporation of Buffalo (see table of contents for list of
omitted exhibits and schedules).
2.15(o) -- Asset Purchase Agreement dated April 11, 1996 between
Mercury Radio Communications, L.P. and Evergreen Media
Corporation of Los Angeles, Evergreen Media/Pyramid
Holdings Corporation, WHTT (AM) License Corp. and WHTT
(FM) License Corp. (see table of contents for list of
omitted exhibits and schedules).
2.16(o) -- Asset Purchase Agreement dated April 19, 1996 between
Crescent Communications L.P. and Evergreen Media
Corporation of Los Angeles (see table of contents for
list of omitted exhibits and schedules).
2.17(p) -- Asset Purchase Agreement dated June 13, 1996 between
Evergreen Media Corporation of Los Angeles and Greater
Washington Radio, Inc. (see table of contents for list of
omitted exhibits and schedules).
2.18(p) -- Asset Exchange Agreement dated June 13, 1996 among
Evergreen Media Corporation of Los Angeles, Evergreen
Media Corporation of the Bay State, WKLB License Corp.,
Greater Media Radio, Inc. and Greater Washington Radio,
Inc. (see table of contents for list of omitted exhibits
and schedules).
2.19(p) -- Purchase Agreement dated June 27, 1996 between WEDR,
Inc., and Evergreen Media Corporation of Los Angeles (See
table of contents for list of omitted schedules).
2.20(p) -- Time Brokerage Agreement dated July 10, 1996 by and
between Evergreen Media Corporation of Detroit, as
Licensee, and Kidstar Interactive Media Incorporated, as
Time Broker.
2.21(p) -- Asset Purchase Agreement dated July 15, 1996 by and among
Century Chicago Broadcasting L.P., Century Broadcasting
Corporation, Evergreen Media Corporation of Los Angeles
and Evergreen Media Corporation of Chicago.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.22(p) -- Asset Purchase Agreement dated August 12, 1996 by and
among Chancellor Broadcasting Company, Shamrock
Broadcasting, Inc. and Evergreen Media Corporation of the
Great Lakes.
2.23(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (WQRS-FM) (See
table of contents for list of omitted exhibits and
schedules).
2.24(p) -- Asset Purchase Agreement dated as of August 12, 1996
between Secret Communications Limited Partnership and
Evergreen Media Corporation of Los Angeles (See table of
contents for list of omitted schedules).
2.25(q) -- Letter of intent dated August 27, 1996 between EZ
Communications, Inc. and Evergreen Media Corporation.
2.26(q) -- Asset Purchase Agreement dated September 19, 1996 between
Beasley-FM Acquisition Corp., WDAS License Limited
Partnership and Evergreen Media Corporation of Los
Angeles.
2.27(q) -- Asset Purchase Agreement dated September 19, 1996 between
The Brown Organization and Evergreen Media Corporation of
Los Angeles.
2.28(r) -- Stock Purchase Agreement by and between Viacom
International Inc. and Evergreen Media Corporation of Los
Angeles, dated February 16, 1997 (See table of contents
for omitted schedules and exhibits).
2.29(r) -- Agreement and Plan of Merger, by and among Evergreen
Media Corporation, Chancellor Broadcasting Company and
Chancellor Radio Broadcasting Company, dated as of
February 19, 1997.
2.30(r) -- Stockholders Agreement, by and among Chancellor
Broadcasting Company, Evergreen Media Corporation, Scott
K. Ginsburg (individually and as custodian for certain
shares held by his children), HM2/Chancellor, L.P.,
Hicks, Muse, Tate & First Equity Fund 11, L.P., HM2/HMW,
L.P., The Chancellor Business Trust, HM2/HMD Sacramento
GP, L.P., Thomas O. Hicks, as Trustee of the William Cree
Hicks 1992 Irrevocable Trust, Thomas O. Hicks, as Trustee
of the Catherine Forgave Hicks 1993 Irrevocable Trust,
Thomas O. Hicks, as Trustee of the John Alexander Hicks
1984 Trust, Thomas O. Hicks, as Trustee of the Mack
Hardin Hicks 1984 Trust, Thomas O. Hicks, as Trustee of
Robert Bradley Hicks 1984 Trust, Thomas O. Hicks, as
Trustee of the Thomas O. Hicks, Jr. 1984 Trust, Thomas O.
Hicks and H. Rand Reynolds, as Trustees for the Muse
Children's GS Trust, and Thomas O. Hicks, dated as of
February 19, 1997.
2.31(r) -- Joint Purchase Agreement, by and among Chancellor Radio
Broadcasting Company, Chancellor Broadcasting Company,
Evergreen Media Corporation of Los Angeles, and Evergreen
Media Corporation, dated as of February 19, 1997.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.32(s) -- Asset Exchange Agreement,by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Philadelphia, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of Charlotte,
Evergreen Media Corporation of the East, Evergreen Media
Corporation of Carolinaland, WBAV/ WBAV-FM/WPEG License
Corp. and WRFX License Corp., dated as of December 5,
1996 (See table of contents for list of omitted
schedules).
2.33(s) -- Asset Purchase Agreement, by and among EZ Communications,
Inc., Professional Broadcasting Incorporated, EZ
Charlotte, Inc., Evergreen Media Corporation of Los
Angeles, Evergreen Media Corporation of the East and
Evergreen Media Corporation of Carolinaland, dated as of
December 5, 1996 (See table of contents for list of
omitted schedules).
2.34(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: WGCI-AM and WGCI-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.35(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KKBQ-AM and KKBQ-FM), dated as of April
4, 1997 (see table of contents for list of omitted
schedules and exhibits).
2.36(t) -- Asset Purchase Agreement by and between Pacific and
Southern Company, Inc. and Evergreen Media Corporation of
Los Angeles (re: KHKS-FM), dated as of April 4, 1997 (see
table of contents for list of omitted schedules and
exhibits).
2.41(y) -- Amended and Restated Agreement and Plan of Merger among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company, Evergreen Media Corporation,
Evergreen Mezzanine Holdings Corporation and Evergreen
Media Corporation of Los Angeles, dated as of February
19, 1997, amended and restated as of July 31, 1997.
2.42(gg) -- Option Agreement, by and among Evergreen Media
Corporation, Chancellor Broadcasting Company, Bonneville
International Corporation and Bonneville Holding Company,
dated as of August 6, 1997.
2.43(ss) -- Letter Agreement, dated February 20, 1998, between CMCLA
and Capstar Broadcasting Corporation.
2.44(yy) -- Amendment No. 1, dated May 19, 1998, to Letter Agreement
dated February 20, 1998, between CMCLA and Capstar
Broadcasting Corporation.
2.45(yy) -- Unit and Stock Purchase Agreement by and among CMCLA,
Martin Media, L.P., Martin & MacFarlane, Inc., Nevada
Outdoor Systems, Inc., MW Sign Corp. and certain sellers
named therein, dated as of June 19, 1998 (see table of
contents for list of omitted schedules and exhibits).
2.46(yy) -- Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation dated
as of July 7, 1998.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.47(yy) -- Asset Purchase Agreement: dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and
Independent Group Limited Partnership.
2.48(yy) -- Asset Purchase Agreement, dated August 11, 1998, between
Chancellor Media Corporation of Los Angeles and Zapis
Communications Corporation.
2.49(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, Young Ones,
Inc., Zebra Broadcasting Corporation and the Sellers
named therein.
2.50(yy) -- Stock Purchase Agreement, dated August 11, 1998, among
Chancellor Media Corporation of Los Angeles, ML Media
Partners LP., Wincom Broadcasting Corporation and WIN
Communications, Inc.
2.51(yy) -- Stock Purchase and Merger Agreement, dated July 9, 1998,
by and among Chancellor Media Corporation, Chancellor
Mexico LLC, Grupo Radio Centro, S.A. De C.V., and the
Selling Shareholders.
2.52(zz) -- Asset Purchase Agreement, dated August 30, 1998, by and
among Chancellor Media Corporation of Los Angeles,
Whiteco Industries Inc. and Metro Management Associates.
3.1C(ss) -- Amended and Restated Certificate of Incorporation of
Chancellor Media Corporation.
3.2B(ss) -- Amended and Restated Bylaws of Chancellor Media.
4.10(t) -- Second Amended and Restated Loan Agreement dated as of
April 25, 1997 among Evergreen Media Corporation of Los
Angeles, the financial institutions whose names appear as
Lenders on the signature pages thereof (the "Lenders"),
Toronto Dominion Securities, Inc., as Arranging Agent,
The Bank of New York and Bankers Trust Company, as
Co-Syndication Agents, NationsBank of Texas, N.A. and
Union Bank of California, as Co-Documentation Agents, and
Toronto Dominion (Texas), Inc., as Administrative Agent
for the Lenders, together with certain collateral
documents attached thereto as exhibits, including
Assignment of Partnership Interests, Assignment of Trust
Interests, Borrower's Pledge Agreement, Parent Company
Guaranty, Stock Pledge Agreement, Subsidiary Guaranty and
Subsidiary Pledge Agreement (see table of contents for
list of omitted schedules and exhibits).
4.11(z) -- First Amendment to Second Amended and Restated Loan
Agreement, dated June 26, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.15(aa) -- Indenture, dated as of February 14, 1996, governing the
9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.16(bb) -- First Supplemental Indenture, dated as of February 14,
1996, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.17(cc) -- Indenture, dated as of February 26, 1996, governing the
12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.18(dd) -- Indenture, dated as of January 23, 1997, governing the
12% Subordinated Exchange Debentures due 2009 of CMCLA.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.19(ee) -- Indenture, dated as of June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.21(ff) -- Specimen of the 12 1/4% Series A Senior Cumulative
Exchangeable Preferred Stock Certificate of CMCLA.
4.22(ff) -- Specimen of the 12% Exchangeable Preferred Stock
Certificate of CMCLA.
4.23(ff) -- Form of Certificate of Designation for the 12 1/4% Series
A Senior Cumulative Exchangeable Preferred Stock of
CMCLA.
4.24(ff) -- Form of Certificate of Designation for the 12%
Exchangeable Preferred Stock of CMCLA.
4.25(pp) -- Second Amendment to Second Amended and Restated Loan
Agreement, dated August 7, 1997, among Evergreen Media
Corporation of Los Angeles, the Lenders, the Agents and
the Administrative Agent.
4.26(hh) -- Second Supplemental Indenture, dated as of April 15,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.27(pp) -- Third Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 14, 1996, governing
the 9 3/8% Senior Subordinated Notes due 2004 of CMCLA.
4.28(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated June 24, 1997, governing the
8 3/4% Senior Subordinated Notes due 2007 of CMCLA.
4.29(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated February 26, 1997, governing
the 12 1/4% Subordinated Exchange Debentures due 2008 of
CMCLA.
4.30(pp) -- First Supplemental Indenture, dated as of September 5,
1997, to the Indenture dated January 23, 1997, governing
the 12% Subordinated Exchange Debentures due 2009 of
CMCLA.
4.34(uu) -- Amended and Restated Indenture, dated as of October 28,
1997, governing the 10 1/2% Senior Subordinated Notes due
2007 of CMCLA.
4.35(uu) -- Second Supplement Indenture, dated as of October 28,
1997, to the Amended and Restated Indenture dated October
28, 1997 governing the 10 1/2% Senior Subordinated Notes
due 2007 of CMCLA.
4.36(uu) -- Third Amendment to Second Amended and Restated Loan
Agreement, dated October 28, 1997, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.37(uu) -- Fourth Amendment to Second Amended and Restated Loan
Agreement, dated February 10, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.38(vv) -- Indenture, dated as of December 22, 1997, governing the
8 1/8% Senior Subordinated Notes due 2007 of CMCLA.
4.39(ww) -- Fifth Amendment to Second Amended and Restated Loan
Agreement, dated May 1, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
4.40(yy) -- Sixth Amendment to Second Amended and Restated Loan
Agreement, dated July 31, 1998, among CMCLA, the Lenders,
the Agents and the Administrative Agent.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
4.41(zz) -- Indenture, dated as of September 30, 1998, governing the
9% Senior Subordinated Notes due 2008 of CMCLA.
4.42(aaa) -- Seventh Amendment to Second Amended and Restated Loan
Agreement, dated November 9, 1998, among CMCLA, the
Lenders, the Agents and the Administrative Agent.
4.43(zz) -- Indenture, dated as of November 17, 1998, governing the
8% Notes due 2008 of CMCLA.
5.1* -- Opinion of Weil, Gotshal & Manges LLP.
8.1* -- Opinion regarding certain tax matters of Weil, Gotshal &
Manges LLP.
8.2* -- Opinion regarding certain tax matters of Vinson & Elkins
L.L.P.
10.23(xx) -- Amended and Restated Chancellor Media Corporation Stock
Option Plan for Non-employee Directors.
10.26(n) -- Employment Agreement dated February 9, 1996 by and
between Evergreen Media Corporation and Kenneth J.
O'Keefe.
10.28(o) -- 1995 Stock Option Plan for executive officers and key
employees of Evergreen Media Corporation.
10.30(pp) -- First Amendment to Employment Agreement dated March 1,
1997 by and between Evergreen Media Corporation and
Kenneth J. O'Keefe.
10.31(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Scott K. Ginsburg.
10.32(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and James de Castro.
10.33(pp) -- Employment Agreement dated September 4, 1997 by and among
Evergreen Media Corporation, Evergreen Media Corporation
of Los Angeles and Matthew E. Devine.
10.34(pp) -- Second Amendment to Employment Agreement dated September
4, 1997 by and among Evergreen Media Corporation,
Evergreen Media Corporation of Los Angeles and Kenneth J.
O'Keefe.
10.35(ii) -- Employment Agreement dated February 14, 1996 by and among
Chancellor Broadcasting Company, Chancellor Radio
Broadcasting Company and Steven Dinetz.
10.36(jj) -- Chancellor Broadcasting Company 1996 Stock Award Plan.
10.37(kk) -- Chancellor Holdings Corp. 1994 Director Stock Option
Plan.
10.38(ll) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Steven Dinetz.
10.39(mm) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Eric W. Neuman.
10.40(nn) -- Stock Option Grant Letter dated September 30, 1995 from
Chancellor Corporation to Marvin Dinetz.
10.41(oo) -- Stock Option Grant Letter dated February 14, 1997 from
Chancellor Broadcasting Company to Carl M. Hirsch.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
10.44(vv) -- Agreement dated April 20, 1998 by and among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles and Scott K. Ginsburg.
10.45(vv) -- Employment Agreement dated April 29, 1998 by and among
Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Jeffrey A. Marcus.
10.46(yy) -- Chancellor Media Corporation 1998 Stock Option Plan.
10.47(yy) -- Voting Agreement, among Chancellor Media Corporation and
Ranger Equity Partners, L.P. dated as of July 7, 1998.
10.48(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James E. de Castro.
10.49(zz) -- Employment Agreement, dated as of May 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Matthew E. Devine.
10.50(zz) -- Employment Agreement, dated as of June 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Eric C. Neuman.
10.51(zz) -- Employment Agreement, dated as of August 18, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and James A. McLaughlin, Jr.
10.52(bbb) -- Agreement, dated as of January 6, 1999, among Chancellor
Media Corporation, Chancellor Media Corporation of Los
Angeles, Matthew E. Devine and Vicki Devine.
10.53* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Jeffrey A. Marcus.
10.54* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James E. de Castro.
10.55* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Eric C. Neuman.
10.56* -- Employment Agreement, dated as of October 1, 1998, by and
among Chancellor Media Corporation, Chancellor Media
Corporation of Los Angeles and Thomas P. McMillin.
10.57* -- Amendment No. 1 to Employment Agreement, dated as of
January 6, 1999, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and Thomas P. McMillin.
10.58* -- Amended and Restated Employment Agreement, dated as of
October 1, 1998, by and among Chancellor Media
Corporation, Chancellor Media Corporation of Los Angeles
and James A. McLaughlin, Jr.
12.1* -- Chancellor Media Corporation Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
21.1* -- Subsidiaries of Chancellor Media Corporation.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
23.1 -- Consent of Weil, Gotshal & Manges LLP (included as part
of their opinion listed as Exhibit 5.1).
23.2* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.3* -- Consent of KPMG LLP, independent accountants.
23.4* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.5* -- Consent of KPMG LLP, independent accountants.
23.6* -- Consent of Arthur Andersen LLP, independent accountants.
23.7* -- Consent of Ernst & Young LLP, independent accountants.
23.8* -- Consent of BDO Seidman, LLP, independent accountants.
23.9* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.10* -- Consent of Ernst & Young LLP, independent accountants.
23.11* -- Consent of Ernst & Young LLP, independent accountants.
23.12* -- Consent of Arthur Andersen LLP, independent accountants.
23.13* -- Consent of Barbich Longcrier Hooper & King Accountancy
Corporation, independent auditors.
23.14* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.15* -- Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.16* -- Consent of Wasserstein Perella & Co., Inc., financial
advisor to the Special Committee of the Board of
Directors of Chancellor Media.
23.17* -- Consent of Morgan Stanley & Co. Incorporated, financial
advisor to the Board of Directors of Chancellor Media.
23.18* -- Consent of Greenhill & Co., LLC, financial advisor to the
Board of Directors of LIN.
23.19* -- Consent of Vinson & Elkins L.L.P.
24.1 -- Powers of Attorney (included on signature pages).
99.1* -- Certificate of Incorporation of Ranger Equity Holdings
Corporation.
99.2* -- Bylaws of Ranger Equity Holdings Corporation.
* Filed herewith.
+ To be filed by amendment.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-1, as amended (Reg. No. 33-60036), of
Evergreen Media Corporation ("Evergreen").
(f) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-4, as amended (Reg. No.
33-89838).
(h) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 14, 1995.
(i) Incorporated by reference to the identically numbered exhibit to
Evergreens Current Report on Form 8-K dated January 17, 1996.
(j) Incorporated by reference to the identically numbered exhibit to
Evergreens Quarterly Report on Form 10-Q for the quarterly period ending
June 30, 1995.
(k) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-1, as amended (Reg. No.
33-69752).
(n) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
(o) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ending
March 31, 1996.
(p) Incorporated by reference to the identically numbered exhibit to
Evergreen's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(q) Incorporated by reference to the identically numbered exhibit to
Evergreen's Registration Statement on Form S-3, as amended (Reg. No.
333-12453).
(r) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated February 16, 1997 and filed
March 9, 1997.
(s) Incorporated by reference to the identically numbered exhibit to
Evergreen's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(t) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated April 1, 1997 and filed May
9, 1997.
(y) Incorporated by reference to the identically numbered exhibit of
Evergreen's Registration Statement on Form S-4, filed August 1, 1997.
(z) Incorporated by reference to the identically numbered exhibit to
Evergreen's Current Report on Form 8-K dated July 7, 1997 and filed July
31, 1997.
(aa) Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(bb) Incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K
of Chancellor Broadcasting Company, Chancellor Radio Broadcasting Company
and Chancellor Broadcasting Licensee Company for the fiscal year ended
December 31, 1995.
(cc) Incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company, as filed on February 29, 1996.
(dd) Incorporated by reference to Exhibit 4.7 to the Current Report on Form 8-K
of Chancellor Radio Broadcasting Company, as filed on February 6, 1997.
(ee) Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K
of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company as filed on July 17, 1997.
(ff) Incorporated by reference to the identically-numbered exhibit to the
Registration Statement on Form S-4 (Reg. No. 333-32259), dated July 29,
1997, as amended, of Evergreen Media Corporation of Los Angeles ("EMCLA").
(gg) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Evergreen and EMCLA for the quarterly
period ending June 30, 1997.
(hh) Incorporated by reference to Exhibit 4.8 to the Quarterly Report on Form
10-Q of Chancellor Broadcasting Company and Chancellor Radio Broadcasting
Company for the quarterly period ending March 31, 1997.
(ii) Incorporated by reference to Exhibit 10.6 to Chancellor Broadcasting
Company's Registration Statement on Form S-1 (Reg. No. 333-02782) filed
February 9, 1996.
(jj) Incorporated by reference to Exhibit 4.22 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(kk) Incorporated by reference to Exhibit 4.23 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(ll) Incorporated by reference to Exhibit 4.24 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(mm) Incorporated by reference to Exhibit 4.25 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(nn) Incorporated by reference to Exhibit 4.26 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(oo) Incorporated by reference to Exhibit 4.27 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-35039), dated September
5, 1997.
(pp) Incorporated by reference to the identically numbered exhibit to the
CMCLA's Registration Statement on Form S-4 (Reg. No. 333-36451), dated
September 26, 1997, as amended.
(ss) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
February 23, 1998 and filed as of February 27, 1998.
(tt) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor Media and the CMCLA for the
fiscal year ended December 31, 1997.
(uu) Incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K of Chancellor and CMCLA for the fiscal year
ended December 31, 1997.
(vv) Incorporated by reference to the identically numbered exhibit to CMCLA's
Registration Statement on Form S-4 (Reg. No. 333-50739), dated April 22,
1998, as amended.
(ww) Incorporated by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending March 31, 1998.
(xx) Incorporated by reference to Exhibit 4.41 to Chancellor Media's
Registration Statement on Form S-8 (Reg. No. 333-53179), dated May 20,
1998.
(yy) Incorporated-by reference to the identically numbered exhibit to the
Quarterly Report on Form 10-Q of Chancellor Media and CMCLA for the
quarterly period ending June 30, 1998.
(zz) Incorporated by reference to Exhibit 4.41 to CMCLA's Registration
Statement on Form S-4 (Reg. No. 333-66971), initially filed November 9,
1998, as amended.
(aaa) Incorporated by reference to Exhibit 4.42 to the Quarterly Report on Form
10-Q of Chancellor Media and CMCLA for the quarterly period ending
September 30, 1998.
(bbb) Incorporated by reference to the identically numbered exhibit to the
Current Report on Form 8-K of Chancellor Media and CMCLA, dated as of
January 7, 1999 and filed as of January 7, 1999.
EXHIBIT 5.1
[WEIL, GOTSHAL & MANGES LLP LETTERHEAD]
February 17, 1999
Chancellor Media Corporation
300 Crescent Court, Suite 600
Dallas, Texas 75201
Ladies and Gentlemen:
We have acted as counsel to Chancellor Media Corporation, a Delaware corporation
(the "Company"), in connection with the preparation and filing by the Company
with the Securities and Exchange Commission of a Registration Statement on Form
S-4 (No. 333- ) (as amended, the "Registration Statement") under the
Securities Act of 1933, as amended, relating to the proposed offering of up to
16,179,645 shares of the common stock, $0.01 par value, of the Company (the
"Shares"), pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated as of July 7, 1998, by and between the Company and Ranger Equity Holdings
Corporation, a Delaware corporation ("LIN"). The Shares are to be issued to the
stockholders of LIN in accordance with terms of the Merger Agreement in exchange
for each such stockholder's shares of common stock, $0.01 par value ("LIN Common
Stock"), of LIN.
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Amended and Restated Certificate of
Incorporation of the Company, as amended (the "Charter"), and such corporate
records, agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives of
the Company, and have made such inquiries of such officers and representatives
as we have deemed relevant and necessary as a basis for the opinions hereinafter
set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated herein, we are
of the opinion that:
1. The Company is a corporation validly existing and in good standing
under the laws of the State of Delaware.
2. The Shares have been duly authorized and, when issued and delivered
to the stockholders of LIN in exchange for shares of LIN Common Stock in
accordance with the terms of the Merger Agreement, will be validly issued,
fully paid and nonassessable.
Chancellor Media Corporation
February 17, 1999
Page 2
The opinions expressed herein are limited to the corporate laws of the State of
Delaware and we express no opinion as to the effect on the matters covered by
this letter of the laws of any other jurisdiction.
We hereby consent to the filing of this letter as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
EXHIBIT 8.1
[Weil, Gotshal & Manges, LLP]
February 17, 1999
Chancellor Media Corporation
300 Crescent Court
Suite 600
Dallas, Texas 75201
Ladies & Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences of the merger (the "Merger") of Ranger Equity Holdings
Corporation, a Delaware corporation ("LIN"), with and into Chancellor Media
Corporation, a Delaware corporation ("Chancellor").
In formulating our opinion, we have examined such documents as
we deemed appropriate, including the Agreement and Plan of Merger dated as of
July 7, 1998 (the "Merger Agreement"), between LIN and Chancellor, the Proxy
Statement (the "Proxy Statement") filed by Chancellor with the Securities and
Exchange Commission (the "SEC") and the Registration Statement filed on Form
S-4, as filed by Chancellor with the SEC on February 17, 1999, in which the
Proxy Statement is included as a prospectus (with all the amendments thereto,
the "Registration Statement"). In addition, we have obtained such additional
information as we deemed relevant and necessary through consultation with
various officers and representatives of Chancellor and LIN.
Our opinion set forth below assumes (1) the accuracy of the
statements and facts concerning the Merger set forth in the Merger Agreement,
the Proxy Statement and the Registration Statement, (2) the consummation of the
Merger in the manner contemplated by, and in accordance with the terms set forth
in, the Merger Agreement, the Proxy Statement and the Registration Statement,
and (3) the accuracy of (i) the factual representations made by Chancellor which
are set forth in the Certificate delivered to us by Chancellor, dated the date
hereof; (ii) the factual representations made by LIN which are set forth in the
Certificate delivered to us by LIN, dated the date hereof and (iii) the factual
representations made by Ranger Equity Partners, L.P. which are set forth in the
Certificate delivered to us by Ranger Equity Partners, L.P., dated the date
hereof.
Chancellor Media Corporation
Page 2
Based upon the facts and statements set forth above, our
examination and review of the documents referred to above and subject to the
assumptions set forth above, we are of the opinion that for federal income tax
purposes:
1. The Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
2. Each of Chancellor and LIN will be a party to the
reorganization within the meaning of Section 368(b) of
the Code.
3. No gain or loss will be recognized by Chancellor or LIN
as a result of the Merger.
Our opinion is based on current provisions of the Code, the
Treasury Regulations promulgated thereunder, published pronouncements of the
Internal Revenue Service and case law, any of which may be changed at any time
with retroactive effect. Any change in applicable laws or facts and
circumstances surrounding the Merger or any inaccuracy of the statements, facts,
assumptions and representations on which we have relied, may affect the validity
of the opinion set forth herein. We assume no responsibility to inform you of
any such change or inaccuracy that may occur or come to our attention.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
EXHIBIT 8.2
[VINSON & ELKINS LETTERHEAD]
February 17, 1999
Ranger Equity Holdings Corporation
4 Richmond Square, Suite 200
Providence, Rhode Island 02906
Ladies and Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of the merger (the "Merger") of Ranger Equity Holdings
Corporation ("LIN") with and into Chancellor Media Corporation ("Chancellor
Media") pursuant to an Agreement and Plan of Merger dated as of July 7, 1998
(the "Merger Agreement"). Defined terms used in the Merger Agreement have the
same meaning when used herein, unless otherwise defined herein.
In rendering this opinion, we have examined and are relying upon
(without any independent investigation or review thereof) the truth and accuracy
at all relevant times of the statements, covenants, and factual representations
contained in (i) the Merger Agreement (including all disclosure schedules
thereto), (ii) the Joint Proxy Statement/Prospectus (which was included in the
registration statement on Form S-4, as amended, filed jointly by Chancellor
Media and LIN with the Securities and Exchange Commission (the "Registration
Statement")), and (iii) the Ranger Equity Holdings Corporation Certificate dated
the date hereof provided to us by LIN, the Chancellor Media Corporation
Certificate dated the date hereof provided to us by Chancellor Media and the
Stockholder Certificate dated the date hereof provided to us by Ranger Equity
Partners, L.P. Any inaccuracy in any of the aforementioned statements, factual
representations, and assumptions could adversely affect our opinion.
On the basis of the foregoing, and subject to the limitations set forth
below, it is our opinion that, under presently applicable federal income tax
law, the Merger will be treated as a reorganization within the meaning of
section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and LIN and Chancellor Media will each be a party to that reorganization within
the meaning of Section 368(b) of the Code. As a result, the following U.S.
federal income tax consequences will occur:
Ranger Equity Holdings Corporation
February 17, 1999
Page 2
(a) no gain or loss will be recognized by LIN in connection
with the Merger;
(b) no gain or loss will be recognized by holders of LIN
Common Stock solely by reason of their receipt, in the Merger, of
Chancellor Media Common Stock in exchange therefor;
(c) gain or loss, if any, will be recognized by holders of LIN
Common Stock upon the receipt of cash in lieu of fractional shares of
Chancellor Media Common Stock. A holder of LIN Common Stock who
receives cash in lieu of a fractional share interest in Chancellor
Media Common Stock will be treated as having received such fractional
share interest from Chancellor Media in the Merger. The cash received
by such shareholder in lieu of the fractional share interest in
Chancellor Media Common Stock will be treated as received in exchange
for such fractional share interest, and gain or loss will be recognized
measured by the difference between the amount of cash received and the
portion of the basis of the shares of Chancellor Media Common Stock
allocable to such fractional share interest. Such gain or loss will be
capital gain or loss if the LIN Common Stock is held by the shareholder
as a capital asset at the Effective Time;
(d) the tax basis of the Chancellor Media Common Stock
received in the Merger by a LIN stockholder in exchange for his or her
LIN Common Stock will be the same as such stockholder's tax basis in
the LIN Common Stock surrendered in exchange therefor, reduced by any
tax basis allocable to a fractional share interest in Chancellor Media
Common Stock for which cash is received;
(e) the holding period of the Chancellor Media Common Stock
received by a LIN stockholder will include the period during which the
LIN Common Stock surrendered in exchange therefor was held, provided
that such LIN Common Stock is held by such LIN stockholder as a capital
asset within the meaning of Section 1221 of the Code at the Effective
Time; and
(f) cash received by a holder of LIN Common Stock as a result
of an exercise of dissenters' rights of appraisal will be treated as
having been received by such shareholder as a distribution in
redemption of his or her LIN Common Stock, subject to the provisions
and limitations of section 302 of the Code. If, as a result of such
distribution, a shareholder owns no Chancellor Media Common Stock
either directly or through the application of section 318(a) of the
Code, the redemption will be a complete termination of interest within
the meaning of section 302(b)(3) of the Code and such cash will be
treated as a distribution in exchange for his or her LIN Common Stock,
as provided in
Ranger Equity Holdings Corporation
February 17, 1999
Page 3
section 302(a) of the Code. In such event, gain (or subject to the
limitations of section 267 of the Code) loss will be realized and
recognized by such shareholder in an amount equal to the difference
between the amount of such cash and the adjusted basis of the shares of
LIN Common Stock surrendered. Such gain or loss will be capital gain or
loss if the LIN Common Stock is held by the shareholder as a capital
asset at the Effective Time.
Our opinion is based on our interpretation of the Code,
applicable Treasury regulations, judicial authority, and administrative
rulings and practice, all as in effect as of the date hereof. There can
be no assurance that future legislative, judicial or administrative
changes or interpretations will not adversely affect the accuracy or
applicability of the conclusions set forth herein. We do not undertake
to advise you as to any such future changes or interpretations unless
we are specifically retained to do so. Our opinion will not be binding
upon the Internal Revenue Service or the courts, and neither will be
precluded from adopting a contrary position.
No opinion is expressed as to any matter not specifically
addressed above, including, without limitation, the tax consequences of
the Merger under any foreign, state, or local tax law. Moreover, tax
consequences which are different from or in addition to those described
herein may apply to holders of LIN Common Stock who are subject to
special treatment under the U.S. federal income tax laws, such as
persons who acquired their shares pursuant to the exercise of employee
stock options or otherwise as compensation or who are not citizens or
residents of the United States. Such persons are advised to consult
their own tax advisors with specific reference to their particular
circumstances.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do not hereby
admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 and the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Vinson & Elkins L.L.P.
EXHIBIT 10.53
EXECUTION COPY
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JEFFREY A. MARCUS
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into this 1st day of October, 1998 (the
"Execution Date"), to be effective as of June 1, 1998 (the "Effective Date"),
between Chancellor Media Corporation, a Delaware corporation (the "Company"),
and Chancellor Media Corporation of Los Angeles, a Delaware corporation ("Los
Angeles") and Jeffrey A. Marcus (the "Executive"), residing at 6801 Turtle Creek
Blvd., Dallas, Texas 75205.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on April 29, 1998
(the "Original Execution Date"), to be effective as of June 1, 1998 (the
"Original Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Original Employment Agreement by amending and
restating the Original Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) Two
Million Dollars ($2,000,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term, which begins on the Effective Date and each
annual anniversary thereof.
2
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to other senior officers of the Company in connection with such
officers' initial hiring by the Company, or in connection with the extension of
the term of such senior officers' employment agreements with the Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) any adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff, (c) relocation of the Executive's regular work address without
his consent, (d) the Executive's failure, at any time, to be permitted to serve
as a member of the Board or (e) a Change in Control, provided, however, that the
Executive shall give the Company written notice of any actions (other than those
set out in subsections (c) (only as it relates to a location outside of the
Dallas/Fort Worth area), (d) or (e) above) alleged to constitute Good Reason and
the Company shall have a reasonable opportunity to cure any such alleged Good
Reason.
"MCC" shall have the meaning ascribed to such term in Section
3(c)(ii).
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Stock Option Plan, as amended from time to time, and any successor thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
3
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Executive's Employment Term shall become effective and
begin as of the Effective Date hereof, and shall continue until the close of
business on the fifth (5th) anniversary of the Effective Date (the "Expiration
Date"), unless the Executive's employment is earlier terminated pursuant to a
Termination of Employment. The Executive will serve the Company subject to the
general supervision, advice and direction of the Board and upon the terms and
conditions set forth in this Agreement.
4
3. TITLE AND DUTIES
(a) The Executive's job title shall be President and Chief
Executive Officer of the Company. During the Employment Term the Executive shall
have such authority and duties as are usual and customary for such position, and
shall perform such other services and duties as the Board may from time to time
designate consistent with such position, including, without limitation, general
charge of the Company's business and the strategic direction of the Company's
business, subject to the direction and control of the Board. Throughout the
Employment Term, the Company shall also nominate the Executive to serve as a
member of the Board and upon such nomination Executive shall agree to so serve.
(b) The Executive shall report solely to the Board. All senior
officers of the Company shall report directly or indirectly through other senior
officers, to the Executive, and the Executive shall be responsible for reviewing
the performance of other senior officers of the Company, and shall from time to
time advise the Board of his recommendations for any adjustments to the salaries
of and bonus payments to such officers. The Executive shall be responsible for
and, subject to discussion with and ratification by the Board, have the
authority to enter into, employment contracts on behalf of the Company with
other executives of the Company.
(c) The Executive shall devote his best efforts and such
business time to the business affairs of the Company as may be reasonably
necessary for the discharge of his duties as President and Chief Executive
Officer. The Executive may not engage in any other venture which is directly or
indirectly in conflict or competition with the then existing business of the
Company, nor may the Executive accept employment with any other individual or
other entity; provided, however, the Executive may devote reasonable time and
attention to:
(i) serving as a director of, or member of
a committee of the directors of, any not-for-profit organization, or
engaging in other charitable or community activities;
(ii) serving as (A) Chairman, President and
Chief Executive Officer of Marcus Cable Company, L.L.C., and any of its
affiliated companies ("MCC") and (B) an officer, director and
stockholder of Marcus Cable Properties, Inc., the ultimate general
partner of MCC; provided, however, the Executive shall no longer serve
as President and Chief Executive Officer of MCC following the earlier
to occur of (i) six (6) months after the Original Execution Date
(subject to an additional six (6) month extension at the reasonable
discretion of the Chairman of the Board), or (ii) a replacement
President and Chief Executive Officer of MCC is appointed; and
(iii) serving as a member of the board of
directors (or other governing body) of MCC (or any successor entity)
and other corporations and organizations, so long as such activities do
not interfere unreasonably with the Executive's duties hereunder.
5
4. COMPENSATION AND BENEFITS
(a) Base Compensation. Subject to Section 4(c) hereof, during
the Employment Term, the Company shall pay the Executive, in installments
according to the Company's regular payroll practice, Base Salary at the annual
rate of One Million One Hundred Twenty-Five Thousand Dollars ($1,125,000) for
the first (1st) Contract Year; and subject to increase for each subsequent
Contract Year an amount equal to the product of
(i) the Base Salary for the immediately
preceding Contract Year; and
(ii) the ratio of the Consumer Price Index
for the last complete calendar month in such preceding Contract Year to
the Consumer Price Index for the same month in the year preceding such
preceding Contract Year
; provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. Subject to Section 4(c) hereof,
the Executive shall be entitled to an Annual Bonus for each calendar year of
which he is employed hereunder on the last day thereof and also for the calendar
year, if any, in which this contract expires pursuant to Section 2. Such Annual
Bonus for any such calendar year shall be as determined by the Compensation
Committee in its reasonable discretion; provided, however, the Annual Bonus
shall in no event be less than Two Million Dollars ($2,000,000) nor greater than
Four Million Dollars ($4,000,000); provided, further, the Annual Bonus for any
partial calendar year shall be adjusted pro rata for the portion of the calendar
year contained within the Employment Term. The Executive's Annual Bonus earned
with respect to each calendar year shall be paid at the same time as annual
incentive bonuses with respect to that calendar year are paid to other senior
executives of the Company generally, but in no event later than March 31 of the
following calendar year.
(c) Agreed Salary Adjustment. Notwithstanding the provisions
of Sections 4(a) and 4(b) hereinabove, in the event any other employee of the
Company shall be paid total gross cash compensation (exclusive of Employment
Inducements) in any calendar year after the Original Execution Date that is
greater than eighty percent (80%) of the total gross cash compensation in such
calendar year paid to the Executive pursuant to Sections 4(a) and 4(b)
hereinabove (the "Agreed Ratio"), the amounts paid to the Executive pursuant to
Sections 4(a) and 4(b) hereinabove, shall be increased so that such employee's
total gross cash compensation does not exceed the Agreed Ratio.
(d) Stock Options.
(i) On the Original Execution Date hereof
the Executive shall be granted Options to purchase One Million Two
Hundred Fifty Thousand (1,250,000) shares of Common Stock.
6
(ii) All Options described in paragraph (i)
above shall be granted subject to the following terms and conditions:
(A) the Options shall be granted under and subject to the Option Plan;
(B) the exercise price of the Options shall be $42.125 per share (the
price per share at the close of trading on April 28, 1998); (C)
one-half of the Options under paragraph (i) shall be vested on the date
of grant, and one-half of the Options under paragraph (i) shall be
vested on the eighteenth (18th) month anniversary of the date of the
grant if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Termination of Employment by
the Executive for Good Reason or a Termination of Employment by the
Company other than for Cause, all such Options shall vest and become
exercisable on the date of such Termination of Employment; (D) each
Option shall be exercisable for the ten (10) year period following the
date of the grant; and (E) each Option shall be evidenced by, and
subject to, an Option Agreement.
(iii) Subject to paragraph (vi) hereinbelow,
on the Effective Date and each of the first four anniversaries thereof
on which the Executive remains employed hereunder, the Executive shall
be granted Options to purchase Two Hundred Thousand (200,000) shares of
Common Stock. In the event the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good
Reason prior to the Expiration Date, the Executive shall be granted, as
of the date of such Termination of Employment, a number of Options
equal to One Million (1,000,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence. If the
Employment Term continues beyond the Expiration Date, the Compensation
Committee shall have the discretion to grant additional Options to the
Executive with respect to such continued employment.
(iv) All Options described in paragraph
(iii) above shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject to the
Option Plan; (B) the exercise price of the Options issued on the
Effective Date shall be $41.50 (the price per share at the close of
trading on June 1, 1998) and all other options described in paragraph
(iii) shall have an exercise price equal to the last reported sale
price of the Common Stock on the Nasdaq National Market System (or
other principal trading market for the Common Stock) at the close of
the trading day immediately preceding the date as of which the grant is
made; provided, however, that with respect to any Options the grant of
which is accelerated because the Executive's employment is terminated
either by the Company or the Executive as a result of a Change in
Control, the exercise price of such Options shall be the lower of (x)
the exercise price equal to the average last reported sale price in the
Nasdaq National Market System (or other principal trading market for
the Common Stock) for the 30 trading days prior to the ten trading days
ending at the close of the trading day immediately preceding the date
any announcement of such Change in Control is made and (y) an exercise
price equal to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading market for
the Common Stock) at the close of the trading day immediately preceding
the
7
date as of which the grant is made; (C) each Option shall be vested on
the date of grant; (D) each Option shall be exercisable for the ten
(10) year period following the date of the grant; and (E) each Option
shall be evidenced by, and subject to, an Option Agreement.
(v) The Option Agreements shall specify that
such Options shall remain exercisable for the periods described in
paragraphs (ii) and (iv) above notwithstanding any Termination of
Employment.
(vi) Notwithstanding the provisions of
paragraph (iii) hereinabove, in the event any other employee of the
Company shall be granted Options (exclusive of Employment Inducements)
in any calendar year that are greater than eighty percent (80%) of the
total Options in such calendar year granted to the Executive (the
"Agreed Option Ratio"), the Options granted to the Executive pursuant
to paragraph (iii) hereinabove, shall be increased so that the grant of
such Options (exclusive of Employment Inducements) to such other
employee does not exceed the Agreed Option Ratio.
(e) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(f) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans (in the case of any group health, hospitalization and disability
plans and other employee welfare benefit plans currently provided to the
Executive by MCC, after the Executive no longer participates in such plan or
plans) in which other senior executives of the Company may participate, on terms
and conditions no less favorable than those which apply to such other senior
executives of the Company.
(g) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(h) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(f), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
8
(i) Automobile and Parking Allowance. During the Employment
Term, the Company shall (A) (i) either provide the Executive with, or pay or
reimburse the Executive for his purchase or lease of a luxury automobile
selected by the Executive with a retail sales price of not more than One Hundred
Thousand Dollars ($100,000), which automobile may be traded, in Executive's
discretion, every two (2) years during the Employment Term, and (ii) pay all
insurance and all other expenses related to the business operation of such
automobile, and (B) provide the Executive with a parking space at the
Executive's offices maintained in Dallas County, Texas.
(j) Use of Company Aircraft. During the Employment Term, the
Company shall provide the Executive with (i) priority use of aircraft operated
by or for the Company which shall be equal to or better than the quality of a
Gulfstream IVSP airplane (the "Company Aircraft"), for all business uses, and
(ii) subject at all times to the Company's priority for business purposes,
unlimited priority use of the Company Aircraft for personal use at the then most
favorable applicable hourly charge being charged to other users of the Company
Aircraft. During each calendar year during which the Executive is employed by
the Company the first $100,000 of personal use aircraft charges will not be paid
by the Executive but will be included as income to Executive on Executive's
annual W-2 Wage Tax Statement from the Company. The foregoing $100,000 amount
shall be pro-rated for any calendar year during which the Executive is employed
only for a portion of such calendar year.
(k) Office Facilities. As soon as practicable after the
Effective Date, and at all times during the Employment Term, the Company shall
(to the extent practicable) provide the Executive with office space in the same
building as the offices of Hicks, Muse, Tate & Furst Incorporated, or, if such
office space is not available, in a comparable location of the Executive's
choosing. Such office space shall be of a layout and include furnishings that
are similar to offices utilized by presidents and chief executive officers of
comparable companies in the area, and shall include private bathroom facilities.
Notwithstanding anything to the contrary in this Agreement, upon termination of
Executive's employment hereunder, Executive shall have the option to purchase
any or all of his office furnishings at their cost, net of any depreciation
through Executive's termination date.
(l) Execution Bonus. Within fifteen (15) days after the
execution and delivery of the Original Employment Agreement, the Company shall
pay to the Executive a one-time execution bonus in the gross amount of One
Million Dollars ($1,000,000).
(m) Other Benefits. During the Employment Term, the Company
shall provide the Executive with, or pay or reimburse the Executive for:
9
(i) the cost incurred for membership of the
Executive in a metropolitan lunch club of the Executive's choosing, and
for membership of the Executive and his spouse and dependent family
members in the athletic club of the Executive's choosing and in the
country club of the Executive's choosing.
(ii) the actual cost for year-round personal
security services that are, in the Executive's reasonable judgment,
necessary or desirable to ensure the safety and security of the
Executive and the Executive's family.
(iii) the actual cost of annual preparation
of the Executive's federal income tax returns.
(iv) the actual cost of two (2) secretaries
or assistants at an aggregate annual gross salary for both such persons
of approximately One Hundred Twenty Seven Thousand Dollars ($127,000)
and one (1) personal accountant at a gross salary of approximately
Sixty-One Thousand Dollars ($61,000), subject in all cases to annual
salary increases consistent with those available to the other members
of the Company's support staff.
(n) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (k) and clause (m) of this Section 4) in an
aggregate amount greater than or on more favorable terms and conditions (on an
aggregate basis) as are granted to any other senior executive of the Company,
the Executive shall be provided such benefits in substantially comparable amount
and/or under the substantially comparable terms and conditions, as applicable,
on an aggregate basis.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company. The Company shall also reimburse
the Executive for all reasonable attorneys' fees incurred in connection with the
negotiation and execution of this Agreement.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), any Annual Bonus
earned but not yet paid with respect to the preceding calendar year, all
benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), and, not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination. The Executive shall be entitled to the payments
and benefits described below only as each is applicable to such termination of
employment.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not
10
by reason of expiration or non-renewal of this Agreement), and subject to the
last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment, and the payment of any income taxes on the amount over Six Million Two
Hundred Fifty Thousand Dollars ($6,250,000) that is so grossed-up and paid to
the Executive on account of any applicable Excise Tax, shall equal Six Million
Two Hundred Fifty Thousand Dollars ($6,250,000). Such payment shall be made at
the time of any such termination without Cause or within thirty (30) days of any
such resignation for Good Reason. Such payment shall be in full satisfaction of
all obligations of the Company to the Executive hereunder (other than those
obligations set forth in Sections 4(d) and 6(a)) and shall be conditioned on the
Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(c) Notwithstanding the provisions of Section 6(b)
hereinabove, in the event the Company shall at any time after the Original
Execution Date agree to pay cash termination benefits to any other employee of
the Company that are greater than eighty percent (80%) of the cash termination
benefits agreed to be paid to the Executive pursuant to Section 6(b) hereinabove
(the "Agreed Termination Ratio"), the amounts agreed to be paid to the Executive
pursuant to Section 6(b) hereinabove, shall be increased so that such employee's
cash termination benefits do not exceed the Agreed Termination Ratio.
(d) (i) In the event that the Executive elects
to terminate his employment hereunder other than for Good
Reason, the Company, in consideration for the Executive's
agreement in Section 7(b), shall continue to pay him his Base
Salary as set forth in Section 4(a) through the fifth (5th)
anniversary of the Effective Date.
(ii) In addition, in such event, the Company
may, by written notice to the Executive given no later than
fifteen (15) days following his termination of employment,
elect to require the Executive to observe the provisions of
Section 7(c) hereof. In such event, the Company shall, on the
last day of each calendar year through December 31, 2003 make
a payment to him equal to his Average Bonus, and on the last
day of the calendar year which includes the Expiration Date
make a payment to him equal to the product of his Average
Bonus and the fraction of such calendar year which precedes
the Expiration Date.
(e) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a (1) one-time cash payment to the Executive equal to two (2) times the amount
of his annual Base Salary payable for the Contract Year ending on (or in which
falls) the date of Termination of Employment. Such payment shall be made at the
time of such Termination of Employment. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in
11
Sections 4(d) and 6(a)) and shall be conditioned on the Executive giving a
general release of the Company and affiliates in the form used generally by the
Company in the case of the termination of employment of senior executives.
(f) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other radio broadcasting station.
(c) Should the Company make the election set forth in Section
6(d)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the
12
radio or television broadcasting stations owned by the Company or its
subsidiaries or affiliates, or the subsidiaries or affiliates of the Company's
direct or indirect stockholders (collectively the "Protected Companies"), or
(ii) any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any of the
business activities in which the Protected Companies have significant
involvement (collectively, the "Competing Business Areas"), in each case at the
effective time of such Termination of Employment (other than beneficial
ownership of up to five percent (5%) of the outstanding voting stock of a
publicly traded company that owns such a competitor); provided, however, the
foregoing shall not prohibit the Executive from being employed by or performing
activities on behalf of, or having an ownership interest in, any entity that
principally is in the business of owning or operating cable television systems
or otherwise providing multi-channel video service, two-way return interactive
high speed data service, or telephony service.
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws
13
of descent and distribution. From and after consummation of the Capstar Merger,
all rights and obligations of the Company under this Agreement shall be assigned
to and assumed by the New Chancellor. The consummation of the Capstar Merger
shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
14
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
15
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ THOMAS O. HICKS
-----------------------------------------
Thomas O. Hicks
Chairman of the Board
/s/ JEFFREY A. MARCUS
--------------------------------------------
Jeffrey A. Marcus
EXHIBIT 10.54
EXECUTION COPY
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JAMES E. DE CASTRO
This Amended and Restated Employment Agreement (this
"Agreement") is made and entered into this 1st day of October, 1998 (the
"Execution Date"), to be effective as of April 17, 1998 (the "Effective Date"),
between Chancellor Media Corporation, a Delaware corporation (the "Company"),
Chancellor Media Corporation of Los Angeles, a Delaware corporation ("Los
Angeles") and James E. de Castro (the "Executive"), residing at 1025 Seneca
Road, Wilmette, Illinois 60091.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on May 18, 1998, to
be effective as of April 17, 1998 (the "Prior Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) One
Million Six Hundred Thousand Dollars ($1,600,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Broadcast Cash Flow" for any accounting period shall mean
station operating income for such accounting period for the stations owned or
operated by the Company as of the last day of such accounting period on a
consolidated basis excluding depreciation, amortization and corporate, general
and administrative expenses, calculated in a manner consistent with the
presentation of "broadcast cash flow" in the Company's periodic reports filed
with the Securities Exchange Commission.
"Broadcast Cash Flow Target" for any accounting period shall
mean one hundred five percent (105%) of the station operating income for the
corresponding accounting period falling twelve months earlier on a consolidated
basis, excluding depreciation, amortization and corporate, general and
administrative expenses, calculated in a manner consistent with the presentation
of "broadcast cash flow" in the Company's periodic reports filed with the
Securities Exchange Commission, with respect to the stations owned or operated
by the Company as of the last day of the accounting period for which the
Broadcast Cash Flow Target is calculated.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation, which entity shall become the Company for purposes herein
upon the consummation of the Capstar Merger.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12)
2
months and (ii) were not approved by a majority of the Board at the time of
their election or appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g. material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgement, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, and international media opportunities, shall not constitute
a Change in Operations. Any dispute as to whether a Change of Operations has
occurred shall be resolved pursuant to Section 14.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus or Thomas O. Hicks, (c) any adverse change in the Executive's job
responsibilities, duties,
3
functions, status, offices, title, perquisites or support staff, (d) relocation
of the Executive's regular work address by more than ten (10) miles without his
consent, (e) a Change in Operations, (f) the Executive's failure, at any time,
to be permitted to serve as a member of the Board or (g) a Change in Control;
provided, however, that the Executive shall give the Company written notice of
any actions (other than those set out in subsections (e) or (g) above) alleged
to constitute Good Reason and the Company shall have a reasonable opportunity to
cure any such alleged Good Reason.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Prior Employment Agreement" shall be as defined in the
Recitals to this Agreement.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
4
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be President of Chancellor
Radio Group, a division of the Company. During the Employment Term, the
Executive shall have primary executive authority over the Company's operations
in radio in all markets and such other authority and duties as are usual and
customary for such position, and shall perform such additional services and
duties as the Board may from time to time designate consistent with such
position. Throughout the Employment Term, the Company shall also nominate the
Executive to serve as a member of the Board and upon such nomination Executive
shall agree to so serve.
(b) The Executive shall report solely to the Chief Executive
Officer of the Company. All other senior radio operating executives of the
Company shall report
5
directly to the Executive, and the Executive shall be responsible for reviewing
the performance of such senior radio operating executives of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to:
(i) serving as a director of, or member of a
committee of the directors of, any not-for-profit organization
or engaging in other charitable or community activities; and
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Nine Hundred Thousand
Dollars ($900,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year
; provided, however, that in no event shall the Base Salary for any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder.
Such Annual Bonus for any such calendar year shall be equal to five percent (5%)
of the excess, if any, of Broadcast Cash Flow for the portion of such calendar
year during which the Executive is employed over the Broadcast Cash Flow Target
for such portion of such calendar year, but in no event more than Three Million
Dollars ($3,000,000) in any calendar year or, for the calendar year, if any, in
which this contract terminates, the product of Three Million Dollars
($3,000,000) and the fraction of such calendar year which precedes the date of
such termination. The Executive's Annual Bonus earned with respect to each
calendar year shall be paid at the same time as annual incentive bonuses with
respect to that calendar year are paid to other senior executives of the Company
generally, but in no event later than March 31 of the following calendar year.
6
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries thereof on which the Executive remains
employed hereunder, the Executive shall be granted an Option
to purchase One Hundred Sixty Thousand (160,000) shares of
Common Stock. In the event the Executive's employment
hereunder is terminated by the Company without Cause or by the
Executive for Good Reason prior to the Expiration Date, the
Executive shall be granted, as of the date of such Termination
of Employment, a number of Options equal to Eight Hundred
Thousand (800,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
issued on the Effective Date shall be $41.50 and all other
options described in paragraph (i) shall have an exercise
price equal to the last reported sale price of the Common
Stock on the Nasdaq National Market System (or other principal
trading market for the Common Stock) at the close of the
trading day immediately preceding the date as of which the
grant is made; provided, however, that with respect to any
Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date any announcement of such Change
in Control is made and (y) an exercise price equal to the last
reported sale price of the Common Stock on the Nasdaq National
Market System (or other principal trading market for the
Common Stock) at the close of the trading day immediately
preceding the date as of which the grant is made; (C) each
Option shall be vested on the date of grant; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid
7
vacation under the Company's generally applicable vacation policy, as determined
by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall
either provide the Executive with, or pay or reimburse the
Executive for (A) his purchase or lease of an automobile of
the size and class of the Executive's current Company-provided
automobile; and (B) parking space at the Company's corporate
office maintained in Chicago, Illinois; and
(ii) During the Employment Term, the Company shall
provide the Executive with, or pay or reimburse the Executive
for, the cost incurred for membership of the Executive and his
spouse and dependent family members in the athletic club of
Executive's choosing and in the country club of Executive's
choosing.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other senior executive of the Company (except for
Employment Inducements and benefits provided to the Chief Executive Officer of
the Company), the Executive shall be provided such benefits in substantially
comparable amount and/or under the substantially comparable terms and
conditions, as applicable, on an aggregate basis.
8
(j) Execution Bonuses. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements:
(i) Within fifteen (15) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
pay to the Executive a one-time execution bonus in the gross
amount of One Million Dollars ($1,000,000);
(ii) Within thirty (30) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
make a one-time cash payment to the Executive in a gross
amount such that the net payments retained by the Executive
after payment of any Excise Tax with respect to such payment
shall equal Five Million Dollars ($5,000,000); and
(iii) The Executive shall be granted an option to
purchase Eight Hundred Thousand (800,000) shares of Common
Stock (collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $42.125 per
share (the price per share at the close of trading on April
28, 1998); (C) the Executive Options shall be vested on the
date of grant; (D) each Executive Option shall be exercisable
for the ten (10) year period following the date of grant; and
(E) each Executive Option shall be evidenced by, and subject
to, an Option Agreement.
(iv) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (iii) above notwithstanding any Termination of
Employment.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination, and (iv) not later than ninety (90) days after
such
9
termination, in a lump sum, any Annual Bonus earned with respect to that portion
of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment, and the payment of any income taxes on the amount over Five Million
Dollars ($5,000,000) that is so grossed-up and paid to the Executive on account
of any applicable Excise Tax, shall equal Five Million Dollars ($5,000,000).
Such payment shall be made at the time of any such termination without Cause or
within thirty (30) days of any such resignation for Good Reason. Such payment
shall be in full satisfaction of all obligations of the Company to Executive
hereunder (other than those obligations set forth in Sections 4(c), 4(j)(iii)
and 6(a)) and shall be conditioned on Executive giving a general release of the
Company and affiliates in the form used generally by the Company in the case of
the termination of employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good
Reason, the Company, in consideration for the Executive's
agreement in Section 7(b), shall continue to pay him his Base
Salary as set forth in Section 4(a) through the fifth (5th)
anniversary of the Effective Date.
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than fifteen
(15) days following his termination of employment, elect to
require the Executive to observe the provisions of Section
7(c) hereof. In such event, the Company shall, on the last day
of each calendar year through December 31, 2002 make a payment
to him equal to his Average Bonus, and on the last day of the
calendar year ending December 31, 2003 make a payment to him
equal to the product of his Average Bonus and the fraction of
such calendar year which precedes the Expiration Date.
(d) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a (1) one time cash payment to the Executive equal to two (2) times the amount
of his annual Base Salary payable for the Contract Year ending on (or in which
falls) the date of Termination of Employment. Such payment shall be made at the
time of such Termination of Employment. Such payment shall be in full
satisfaction of all obligations of the Company to the Executive hereunder (other
than those obligations set forth in subsection (a)) and shall be conditioned on
the Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
10
(e) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other radio broadcasting station.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the radio or television broadcasting
stations owned by the Company or its subsidiaries or affiliates, or the
subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in
11
connection with any business enterprise, that is directly or indirectly engaged
in any of the radio, television, outdoor advertising or related business
activities in which the Company and its subsidiaries or the Protected Companies
have significant involvement (collectively, the "Competing Business Areas"), in
each case at the effective time of such Termination of Employment (other than
beneficial ownership of up to five percent (5%) of the outstanding voting stock
of a publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor and
the term Company shall mean New Chancellor. The consummation of the Capstar
Merger shall not constitute a Change in Control.
12
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
13
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. PRIOR EMPLOYMENT AGREEMENT
This Agreement shall supersede and replace in its entirety the
Prior Employment Agreement and, except as specifically described herein, all of
the Executive's and the Company's rights and obligations under the Prior
Employment Agreement are extinguished upon the effectiveness of this Agreement,
and the Executive acknowledges and agrees that he shall have no rights under the
Prior Employment Agreement, including, without limitation, any rights under
Section 6 of the Prior Employment Agreement. The Executive hereby withdraws any
and all termination notices previously delivered in connection with the Prior
Employment Agreement.
17. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this
14
Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
15
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
By: /s/ JEFFREY A. MARCUS
---------------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ JAMES E. DE CASTRO
------------------------------------------------
James E. de Castro
EXHIBIT 10.55
EXECUTION COPY
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
ERIC C. NEUMAN
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Agreement Date"), to be effective as of
July 1, 1998 (the "Effective Date"), between Chancellor Media Corporation, a
Delaware corporation (the "Company"), Chancellor Media Corporation of Los
Angeles, a Delaware corporation ("Los Angeles"), and Eric C. Neuman (the
"Executive"), residing at 3608 Greenbriar Drive, Dallas, Texas 75225.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on June 1, 1998 (the
"Original Agreement Date"), to be effective as of July 1, 1998 (the "Prior
Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) One
Million Dollars ($1,000,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Board, (c)
commission of an act of fraud, theft or embezzlement, or (d) conviction of a
felony or other crime involving moral turpitude; provided, however, that the
Company shall give the Executive written notice of any actions alleged to
constitute Cause under subsections (a) and (b) above, and the Executive shall
have a reasonable opportunity (as specified by the Compensation Committee) to
cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Change in Operations" shall mean a change in the business
operating strategies of the Company (e.g., material cost controls or other
material restrictions on the Company's ability to increase its gross revenues)
which are imposed upon the Executive without his consent, and, in his reasonable
judgement, are fundamentally different from the business operating strategies in
effect at the Company on the Effective Date; provided, however, any expansion of
the Company's business into other media businesses, including, without
limitation, radio stations in small- or medium-sized markets, television,
outdoor advertising, and international media opportunities, shall not constitute
a Change in Operations. Any dispute as to whether a Change of Operations has
occurred shall be resolved pursuant to Section 14.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
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"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus or Thomas O. Hicks, (c) any adverse change in the Executive's job
responsibilities, duties, functions, status, offices, title, perquisites or
support staff, (d) relocation of the Executive's regular work address by more
than twenty (20) miles without his consent, (e) a Change in Operations, or (f) a
Change in Control; provided, however, that the Executive shall give the Company
written notice of any actions (other than those set out in subsections (e) or
(f) above) alleged to constitute Good Reason and the Company shall have a
reasonable opportunity to cure any such alleged Good Reason.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Option is granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
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"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
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"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be Senior Vice President -
Strategic Development of the Company (and any new multi-media company formed
with the Company). During the Employment Term, the Executive shall have such
authority and duties as are usual and customary for such position, and shall
perform such additional services and duties as the Board may from time to time
designate consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer. Certain other senior officers of the Company, designated from time to
time by the Chief Executive Officer, may report, directly or indirectly through
other senior officers designated from time to time by the Chief Executive
Officer, to the Executive, and the Executive shall be responsible for reviewing
the performance of such senior officers of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to:
(i) serving as a director of, or member of a
committee of the directors of, any not-for-profit
organization, or engaging in other charitable or community
activities; and
(ii) serving as a director of, or member of a
committee of the directors of, the corporations or
organizations for which the Executive presently serves in such
capacity, and such other corporations and organizations that
the Board may from time to time approve in the future;
provided, that except as specified above, the Executive may
not accept employment with any other individual or other
entity, or engage in any other venture which is indirectly or
directly in conflict or competition with the then existing
business of the Company.
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4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year with increases of Twenty
Five Thousand Dollars ($25,000) per year for each subsequent Contract Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder.
Such Annual Bonus for any such calendar year shall be as determined by the
Compensation Committee in its reasonable discretion, as recommended by the Chief
Executive Officer of the Company; provided, however, the Annual Bonus shall in
no event be less than Five Hundred Thousand Dollars ($500,000) nor greater than
One Million Five Hundred Thousand Dollars ($1,500,000); provided, further, that
the Annual Bonus for any partial calendar year shall be adjusted pro rata for
the portion of the calendar year contained within the Employment Term. The
Executive's Annual Bonus earned with respect to each calendar year shall be paid
at the same time as annual incentive bonuses with respect to that calendar year
are paid to other senior executives of the Company generally, but in no event
later than March 31 of the following calendar year.
(c) Stock Options.
(i) On the Original Agreement Date and each of the
first four (4) anniversaries of the Effective Date on which
the Executive remains employed hereunder, the Executive shall
be granted an Option to purchase One Hundred Thousand
(100,000) shares of Common Stock. In the event the Executive's
employment hereunder is terminated by the Company without
Cause or by the Executive for Good Reason prior to the
Expiration Date, the Executive shall be granted, as of the
date of such Termination of Employment, a number of Options
equal to Five Hundred Thousand (500,000) minus the number of
Options previously granted pursuant to the immediately
preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Original Agreement Date, $42.3125 per share and (2) in the
case of the Options granted thereafter, the last reported sale
price of the Common Stock on the Nasdaq National Market System
(or other principal trading market for the Common Stock) at
the close of the trading day immediately preceding the date as
of which the grant is made; provided, however, that with
respect to any Options the grant of which is accelerated
because the Executive's employment is terminated either by the
Company or the Executive as a result of a Change in Control,
the exercise price of such Options shall be the lower of (x)
the exercise price equal to the average last reported sale
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price on the Nasdaq National Market System (or other principal
trading market for the Common Stock) for the 30 trading days
prior to the ten trading days ending at the close of the
trading day immediately preceding the date any announcement of
such Change in Control is made and (y) an exercise price equal
to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) at the close of the trading day
immediately preceding the date as of which the grant is made;
(C) each Option shall be vested on the date of grant; (D) each
Option shall be exercisable for the ten (10) year period
following the date of grant; (E) each Option shall be
evidenced by, and subject to, an Option Agreement; and (F) the
number of shares granted shall be subject to adjustment for
any subsequent stock splits.
(iii) The Option Agreements shall specify that such
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
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(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall
either provide the Executive with, or pay or reimburse the
Executive for (A) his purchase or lease of an automobile
selected by the Executive with a retail sales price of not
more than Seventy Thousand Dollars ($70,000); and (B) parking
space at the Company's corporate office maintained in Dallas,
Texas.
(ii) During the Employment Term, the Company shall
provide the Executive with, or pay or reimburse the Executive
for, the cost incurred for membership of the Executive and his
spouse and dependent family members in the athletic club of
Executive's choosing and in the country club of Executive's
choosing.
(i) Most Favored Benefits. If the Company shall provide
employment related benefits (including, without limitation, benefits of the type
referred to by clauses (a) through (h) of this Section 4) in an aggregate amount
greater than or on more favorable terms and conditions (on an aggregate basis)
as are granted to any other senior executive of the Company (except for
Employment Inducements and benefits provided to the Chief Executive Officer or
Chief Financial Officer of the Company, the President of Chancellor Radio Group,
a division of the Company, and the Vice Chairman of New Chancellor), the
Executive shall be provided such benefits in substantially comparable amount
and/or under the substantially comparable terms and conditions, as applicable,
on an aggregate basis.
(j) Execution Bonus. The Executive shall be granted, as an
Employment Inducement, an option to purchase Three Hundred Thousand (300,000)
shares of Common Stock (the "Execution Options"), subject to the following terms
and conditions: (A) the Execution Options shall be granted under and subject to
the Option Plan; (B) the exercise price of the Execution Options shall be
$42.3125 per share; (C) the Execution Options shall be vested on the date of
grant; (D) each Execution Option shall be exercisable for the ten (10) year
period following the date of grant; and (E) each Execution Option shall be
evidenced by, and subject to, an Option Agreement. The Option Agreements shall
specify that such Options shall remain exercisable for the periods described in
this paragraph (j) notwithstanding any Termination of Employment.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
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6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned through
the date of such termination, and (iv) not later than ninety (90) days after
such termination, in a lump sum, any Annual Bonus earned with respect to that
portion of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal Two Million Dollars ($2,000,000). Such payment shall be made
at the time of any such termination without Cause or within thirty (30) days of
any such resignation for Good Reason. Such payment shall be in full satisfaction
of all obligations of the Company to Executive hereunder (other than those
obligations set forth in Sections 4(c), 4(j) and 6(a)) and shall be conditioned
on Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(c) (i) In the event that the Executive elects to terminate
his employment hereunder other than for Good Reason, the Company, in
consideration for the Executive's agreement in Section 7(b), shall continue to
pay him his Base Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the second (2nd)
anniversary of such termination of employment (the earlier of such dates, the
"Cessation Date").
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date make a payment to
him equal to his Average Bonus, and on the last day of the
calendar year which includes the Cessation Date make a payment
to him equal to the product of his Average Bonus and the
fraction of such calendar year which precedes the Cessation
Date.
(d) In the event that the Executive's employment is terminated
by reason of expiration or non-renewal of this Agreement the Company shall make
a one-time cash payment to the Executive equal to two (2) times the amount of
his annual Base
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Salary payable for the Contract Year ending on (or in which falls) the date of
Termination of Employment. Such payment shall be made at the time of such
Termination of Employment. Such payment shall be in full satisfaction of all
obligations of the Company to the Executive hereunder (other than those
obligations set forth in subsection (a)) and shall be conditioned on the
Executive giving a general release of the Company and affiliates in the form
used generally by the Company in the case of the termination of employment of
senior executives.
(e) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
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(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station serving the same "Area of Dominant Influence"
(as reported by Arbitron) as any of the radio or television broadcasting
stations owned by the Company or its subsidiaries or affiliates, or the
subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in connection with any business enterprise, that is directly or
indirectly engaged in any of the radio, television, outdoor advertising or
related business activities in which the Company and its subsidiaries or the
Protected Companies have significant involvement (collectively, the "Competing
Business Areas"), in each case at the effective time of such Termination of
Employment (other than beneficial ownership of up to five percent (5%) of the
outstanding voting stock of a publicly traded company that owns such a
competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
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9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor. The
consummation of the Capstar Merger shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the
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Company on the date hereof; provided, however, that the Board may elect to
terminate Directors and Officers Insurance for all officers and directors,
including the Executive, if the Board determines in good faith that such
insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. INTENTIONALLY OMITTED
17. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted
13
by law. The compensation provided to the Executive pursuant to this Agreement
shall be subject to any withholdings and deductions required by any applicable
tax laws. Any amounts payable under this Agreement to the Executive after the
death of the Executive shall be paid to the Executive's estate or legal
representative. The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
14
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
By: /s/ JEFFREY A. MARCUS
------------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ ERIC C. NEUMAN
---------------------------------------------
Eric C. Neuman
EXHIBIT 10.56
EXECUTION COPY
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
THOMAS P. MCMILLIN
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Effective Date"), between Chancellor
Media Corporation, a Delaware corporation (the "Company"), Chancellor Media
Corporation of Los Angeles, a Delaware corporation ("Los Angeles"), and Thomas
P. McMillin (the "Executive"), residing at 6706 Stefani Drive, Dallas, Texas
75225.
W I T N E S S E T H:
WHEREAS, the Company has a need for executive management
services; and
WHEREAS, the Executive is qualified and willing to render such
services to the Company; and
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive, on the terms and conditions as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) the Base
Salary then in effect.
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Chief
Executive Officer, (c) commission of an act of fraud, theft or embezzlement, or
(d) conviction of a felony or other crime involving moral turpitude; provided,
however, that the Company shall give the Executive written notice of any actions
alleged to constitute Cause under subsections (a) and (b) above, and the
Executive shall have a reasonable opportunity (as specified by the Compensation
Committee) to cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
2
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Contract Non-Renewal" shall mean the decision to not renew or
extend the Employment Term beyond the Expiration Date other than for Cause (as
to the Company's decision) or Good Reason (as to the Executive's decision).
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Execution Options" shall have the meaning ascribed to such
term in Section 4(i)(b).
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to Jeffrey
A. Marcus, (c) any adverse change in the Executive's job responsibilities,
duties, functions, status, offices, title, perquisites or support staff, (d)
relocation of the Executive's regular work address outside of the Dallas
metropolitan area without his consent, or (e) a Change in Control; provided,
however, that the Executive shall give the Company written notice of any actions
(other than that set out in subsection (e) above) alleged to constitute Good
Reason and the Company shall have a reasonable opportunity to cure any such
alleged Good Reason during the 30-day period commencing on the date the Company
receives such written notice.
3
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Options are granted to the
Executive.
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
4
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be Senior Vice President
and Assistant to the President of the Company. During the Employment Term, the
Executive shall have such authority and duties as are usual and customary for
similar positions within the Company, and shall perform such additional services
and duties as the Chief Executive Officer may from time to time designate
consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may
devote reasonable time and attention to serving as a director of, or member of a
committee of the directors of, any corporations or organizations so long as such
activities do not interfere unreasonably with the Executive's duties hereunder
or any not-for-profit organization, or engaging in other charitable or community
activities.
5
(d) Throughout the Employment Term, the Executive shall serve
on the Management Committee of the Company.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus for each calendar year during which he is employed hereunder of
up to 100% of the Executive's Base Salary in effect at the end of the applicable
calendar year (or for the final calendar year within the Employment Term, in
effect at the end of the Employment Term), subject to increases at the
discretion of the Compensation Committee based upon the recommendation of the
Chief Executive Officer of the Company. For each such calendar year one-half of
the Annual Bonus shall be based upon the Executive's performance and one-half of
the Annual Bonus shall be discretionary, in each case as measured against
standards and budgets to be mutually agreed between the Executive and the Chief
Executive Officer, with the amounts of the bonuses to be determined by the
Compensation Committee based upon the recommendation of the Chief Executive
Officer of the Company; provided, however, that the Annual Bonus for any partial
calendar year shall be adjusted pro rata for the portion of the calendar year
contained within the Employment Term. The Executive's Annual Bonus earned with
respect to each calendar year shall be paid at the same time as annual incentive
bonuses with respect to that calendar year are paid to other senior executives
of the Company generally, but in no event later than March 31 of the following
calendar year.
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries of the Effective Date on which the Executive
remains employed hereunder, the Executive shall
6
be granted an Option to purchase Forty Thousand (40,000)
shares of Common Stock. In the event the Executive's
employment hereunder is terminated by the Company without
Cause or by the Executive for Good Reason prior to the
Expiration Date, the Executive shall be granted, as of the
date of such Termination of Employment, a number of Options
equal to Two Hundred Thousand (200,000) minus the number of
Options previously granted pursuant to the immediately
preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Effective Date, $29.875 and (2) in the case of the Options
granted thereafter, the last reported sale price of the Common
Stock on the Nasdaq National Market System (or other principal
trading market for the Common Stock) at the close of the
trading day immediately preceding the date as of which the
grant is made; provided, however, that with respect to any
Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date on which any announcement of
such Change in Control is made and (y) an exercise price equal
to the last reported sale price of the Common Stock on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) at the close of the trading day
immediately preceding the date as of which the grant is made;
(C) twenty-five percent (25%) of the Options shall vest on
each of the first four (4) annual anniversaries of the date of
grant if and to the extent that a Termination of Employment
has not occurred, provided that in the event of a Contract
Non-Renewal, all such Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Options shall vest and become exercisable on
the date of such Termination of Employment; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that such Options
shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
7
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position with the Company, the Executive is entitled to a greater number
of weeks of paid vacation under the Company's generally applicable vacation
policy, as determined by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall (A)
either provide the Executive with, or pay or reimburse the
Executive for his purchase or lease of an automobile selected
by the Executive with a retail sales price of not more than
Seventy Thousand Dollars ($70,000), which automobile may be
traded no more frequently than every three (3) years, and (B)
pay all insurance and all other expenses related to the
business operation of such automobile.
(ii) During the Employment Term, the Company shall
reimburse the Executive for the monthly membership fees in
connection with (A) the membership of the Executive and his
spouse and dependent family members in the country club of
Executive's choosing, and (B) the membership of the Executive
and his spouse and dependent family members in an athletic
club of Executive's choosing.
8
(i) Execution Bonus. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements in connection with the
execution of this Agreement:
(i) Within fifteen (15) days after the execution and
delivery of this Agreement, the Company shall pay to the
Executive a one-time execution bonus in the gross amount of
One Million Dollars ($1,000,000);
(ii) The Executive shall be granted an option to
purchase Two Hundred Thousand (200,000) shares of Common Stock
(collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $29.875; (C)
twenty-five percent (25%) of the Execution Options shall vest
on the Effective Date and twenty-five percent (25%) of the
Execution Options shall vest on each of the first three (3)
annual anniversaries of the date of grant if and to the extent
that a Termination of Employment has not occurred, provided
that in the event of a Termination of Employment by the
Executive for Good Reason or a Termination of Employment by
the Company other than for Cause, all such Execution Options
shall vest and become exercisable on the date of such
Termination of Employment; (D) each Execution Option shall be
exercisable for the ten (10) year period following the date of
grant; (E) each Execution Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits; and
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that the Execution
Options shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect
9
to the preceding calendar year, (ii) all benefits due him under the Company's
benefits plans and policies for his services rendered to the Company prior to
the date of such termination (according to the terms of such plans and
policies), (iii) not later than ninety (90) days after such termination, in a
lump sum, all Base Salary earned through the date of such termination, and (iv)
not later than ninety (90) days after such termination, in a lump sum, any
Annual Bonus earned with respect to that portion of the calendar year prior to
such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal two times the Executive's Base Salary then in effect. Such
payment shall be made at the time of any such termination without Cause or
within thirty (30) days of any such resignation for Good Reason. Such payment
shall be in full satisfaction of all obligations of the Company to Executive
hereunder (other than those obligations set forth in Sections 4(c), 4(i)(ii) and
6(a)) and shall be conditioned on Executive giving a general release of the
Company and affiliates in the form used generally by the Company in the case of
the termination of employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason,
the Company, in consideration for the Executive's agreement in
Section 7(b), shall continue to pay him one-half of his Base
Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the
second (2nd) anniversary of such termination of employment
(the earlier of such dates, the "Cessation Date").
(ii) In addition, in such event, the Company may,
by written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date, make a payment to
him equal to one-half of his Average Bonus, and on the last
day of the calendar year which includes the Cessation Date
make a payment to him equal to the product of one-half of his
Average Bonus and the fraction of such calendar year which
precedes the Cessation Date.
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
10
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting and programming concepts and plans, that
such confidential or proprietary information has been developed and will be
developed through the Company's expenditure of substantial time and money, and
that all such confidential information could be used by the Executive and others
to compete with the Company. The Executive hereby agrees that all such
confidential or proprietary information shall constitute trade secrets, and
further agrees to use such confidential or proprietary information only for the
purpose of carrying out his duties with the Company and not to disclose such
information unless required to do so by subpoena or other legal process. No
information otherwise in the public domain (other than by an act of the
Executive in violation hereof) shall be considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Cessation Date the Executive will not directly or indirectly induce any employee
of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Cessation Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station or outdoor advertising company serving the
same "Area of Dominant Influence" (as reported by Arbitron or any comparable
service) as any of the radio or television broadcasting stations or outdoor
advertising company owned by the Company or its subsidiaries or affiliates, or
the subsidiaries or affiliates of any of the Company's direct or indirect
stockholders owning more than twenty percent (20%) of the Company (collectively
the "Protected Companies"), or (ii) any person, firm, corporation or other
entity, or in connection with any business enterprise, that is directly or
indirectly engaged in any of the radio, television, outdoor advertising or
related business activities in which the Company and its subsidiaries or the
Protected Companies have
11
significant involvement (collectively, the "Competing Business Areas"), in each
case at the effective time of such Termination of Employment (other than
beneficial ownership of up to five percent (5%) of the outstanding voting stock
of a publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder for the period
specified thereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction.
The provisions of this Section 8 shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the
12
Company under this Agreement shall be assigned to and assumed by the New
Chancellor. The consummation of the Capstar Merger shall not constitute a Change
in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
11. GOVERNING LAW
This agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the
13
Board determines in good faith that such insurance is not available or is
available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If
14
any provision of this Agreement, or the application thereof to any person or
circumstance, shall, for any reason and to any extent, be held invalid or
unenforceable, such invalidity and unenforceability shall not affect the
remaining provisions hereof and the application of such provisions to other
persons or circumstances, all of which shall be enforced to the greatest extent
permitted by law. The compensation provided to the Executive pursuant to this
Agreement shall be subject to any withholdings and deductions required by any
applicable tax laws. Any amounts payable under this Agreement to the Executive
after the death of the Executive shall be paid to the Executive's estate or
legal representative. The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or control or affect
the meaning of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be an original, but
such counterparts shall together constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
15
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ JEFFREY A. MARCUS
---------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ THOMAS P. MCMILLIN
------------------------------------------
Thomas P. McMillin
16
EXHIBIT 10.57
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
AMONG
CHANCELLOR MEDIA CORPORATION,
CHANCELLOR MEDIA CORPORATION OF LOS ANGELES
AND
THOMAS P. MCMILLIN
This Amendment No. 1 to Employment Agreement (this
"Amendment") is made and entered into this 6th day of January, 1999 (the
"Effective Date"), among Chancellor Media Corporation, a Delaware corporation
(the "Company"), and Chancellor Media Corporation of Los Angeles, a Delaware
corporation ("Los Angeles") and Thomas P. McMillin (the "Executive"), residing
at 6706 Stefani Drive, Dallas, Texas 75225.
W I T N E S S E T H:
WHEREAS, the Company, Los Angeles and the Executive entered
into an Employment Agreement as of October 1, 1998 (the "Employment Agreement");
WHEREAS, the Company, Los Angeles and the Executive desire to
modify and clarify certain provisions of such Employment Agreement; and
WHEREAS, the capitalized terms used herein without definition
shall have the meaning assigned to such terms in the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. Amendment to Section 3. The words "Senior Vice President and
Assistant to the President" in the initial sentence of paragraph (a) of Section
3 of the Employment Agreement are hereby deleted and replaced with the words
"Senior Vice President and Chief Financial Officer."
2. Amendments to Section 4.
(a) The reference to "100%" in the initial sentence of
paragraph (b) of Section 4 of the Employment Agreement is hereby deleted and
replaced with a reference to "200%."
(b) The current text of subparagraph (i) of paragraph (c) of
Section 4 of the Employment Agreement is hereby deleted in its entirety and
replaced with the following:
"(i) On the Effective Date, the Executive shall be granted
an Option to purchase Forty Thousand (40,000) shares of Common Stock.
On each of the first four (4) anniversaries of the Effective Date on
which the Executive remains employed hereunder, the Executive shall be
granted an Option to purchase Fifty Thousand (50,000) shares of Common
Stock. In the event the Executive's employment hereunder is terminated
by the Company without Cause or by the Executive for Good Reason prior
to the Expiration Date, the Executive shall be granted, as of the date
of such Termination of Employment, a number of Options equal to Two
Hundred Forty Thousand (240,000) minus the number of Options
previously granted pursuant to the two immediately preceding
sentences."
3. Additional Option Grant. In addition to the Options granted to the
Executive as provided in paragraph (c) of Section 4 of the Stock Option
Agreement, the Company shall grant to the Executive, effective as of the
Effective Date, (i) an Option to purchase Fifty Thousand (50,000) shares of
Common Stock (the "50,000 Share Option") and (ii) an Option to purchase Ten
Thousand (10,000) shares of Common Stock (the "10,000 Share Option"). Each of
the 50,000 Share Option and the 10,000 Share Option shall have an exercise price
per share equal to $46.125 (the last reported sale price of the Common Stock on
the Nasdaq National Market System at the close of the trading day immediately
preceding the Effective Date). Except as otherwise expressly provided in this
Section 3, (x) the provisions of paragraphs (h)(ii)(ii) and (h)(ii)(iii) of the
Employment Agreement, including but not limited to provisions regarding vesting
and exercisability, shall apply to the 50,000 Share Options, and (y) the
provisions of paragraphs (c)(ii) and (c)(iii) of the Employment Agreement,
including but not limited to provisions regarding vesting and exercisability,
shall apply to the 10,000 Share Options.
4. No Other Amendments. Except as expressly modified by this
Amendment, all terms and provisions of the Employment Agreement shall remain in
full force and effect.
5. Assignment. This Amendment shall be binding upon the Executive, his
heirs and his personal representative or representatives, and upon the Company
and Los Angeles and their respective successors and assigns. Neither this
Amendment nor any rights or obligations hereunder may be assigned by the
Executive, other than by will or by the laws of descent and distribution.
6. Governing Law. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Texas, without regard
to conflict of law principles.
7. Miscellaneous. The provisions of this Amendment shall survive the
termination of the Executive's employment with the Company. This Amendment,
together with the Employment Agreement, contain the entire agreement of the
parties relating to the subject matter hereof. This Amendment, together with the
Employment Agreement, supersede any prior written or oral agreements or
understandings between the parties relating to the subject matter hereof. No
modification or amendment of this
2
Amendment shall be valid unless in writing and signed by or on behalf of the
parties hereto. A waiver of the breach of any term or condition of this
Amendment shall not be deemed to constitute a waiver of any subsequent breach of
the same or any other term or condition. This Amendment is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Amendment, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The headings in this
Agreement are inserted for convenience of reference only and shall not be a part
of or control or affect the meaning of any provision hereof.
8. Counterparts. This Amendment may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ Jeffrey A. Marcus
----------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ Thomas P. McMillin
----------------------------------------
Thomas P. McMillin
EXHIBIT 10.58
EXECUTION COPY
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
BETWEEN
CHANCELLOR MEDIA CORPORATION
AND
JAMES A. MCLAUGHLIN, JR.
This Employment Agreement (this "Agreement") is made and
entered into as of October 1, 1998 (the "Execution Date"), to be effective as of
August 18, 1998 (the "Effective Date") between Chancellor Media Corporation, a
Delaware corporation (the "Company"), Chancellor Media Corporation of Los
Angeles, a Delaware corporation ("Los Angeles"), and James A. McLaughlin, Jr.
(the "Executive"), residing at 10939 Emerald Chase Drive, Orlando, Florida
32836.
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into an
Employment Agreement between the Company and the Executive on August 18, 1998
(the "Prior Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify and
clarify certain provisions of such Prior Employment Agreement by amending and
restating the Prior Employment Agreement;
WHEREAS, the parties hereto desire to enter into an employment
agreement for the services of the Executive, on the terms and conditions as set
forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the parties agree as
follows:
1. DEFINITIONS
The following terms used in this Agreement shall have the
meaning specified below unless the context clearly indicates the contrary:
"Annual Bonus" shall mean the annual incentive bonus payable
to the Executive described in Section 4.
"Average Bonus" shall mean the greater of (a) (i) the total of
the Annual Bonuses paid hereunder with respect to the Employment Term, divided
by (ii) the length of such portion of the Employment Term in years (including
fractions) as falls on or prior to the last December 31 thereof and (b) Six
Hundred Thousand Dollars ($600,000).
"Base Salary" shall mean the annual base salary payable to the
Executive at the rate set forth in Section 4.
"Board" shall mean the Board of Directors of the Company.
"Capstar" shall mean Capstar Broadcasting Corporation, a
Delaware corporation.
"Capstar Merger" shall mean the proposed merger of the Company
with and into a subsidiary of Capstar, subsequent to which Capstar will change
its name to Chancellor Media Corporation.
"Cause" shall mean the Executive's (a) habitual neglect of his
material duties or failure to perform his material obligations under this
Agreement, (b) refusal or failure to follow lawful directives of the Chief
Executive Officer, (c) commission of an act of fraud, theft or embezzlement, or
(d) conviction of a felony or other crime involving moral turpitude; provided,
however, that the Company shall give the Executive written notice of any actions
alleged to constitute Cause under subsections (a) and (b) above, and the
Executive shall have a reasonable opportunity (as specified by the Compensation
Committee) to cure any such alleged Cause.
"Change in Control" shall mean (a) the sale, lease or other
transfer of all or substantially all of the assets of the Company to any person
or group (as such term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended); (b) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company; (c) the merger
or consolidation of the Company with or into another entity or the merger of
another entity into the Company or any subsidiary thereof with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction (or their Related Parties) directly and indirectly
hold less than fifty percent (50%) of the total voting power of all securities
generally entitled to vote in the election of directors, managers or trustees of
the entity surviving such merger or consolidation; (d) the acquisition by any
person or group of more than fifty percent (50%) of the direct and indirect
voting power of all securities of the Company generally entitled to vote in the
election of directors of the Company; or (e) the majority of the Board is
composed of members who (i) have served less than twelve (12) months and (ii)
were not approved by a majority of the Board at the time of their election or
appointment.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean $0.01 par value common stock of the
Company.
"Compensation Committee" shall mean the Compensation Committee
of the Board.
"Consumer Price Index" shall mean the Consumer Price Index for
All Urban Consumers (1982-84=100) for all cities as reported by the United
States Bureau of Labor Statistics.
2
"Contract Year" shall mean each twelve (12) consecutive month
period during the Employment Term which begins on the Effective Date and each
annual anniversary thereof.
"Contract Non-Renewal" shall mean the decision to not renew or
extend the Employment Term beyond the Expiration Date other than for Cause (as
to the Company's decision) or Good Reason (as to the Executive's decision).
"Employment Inducements" shall mean any compensation,
including, without limitation, signing bonuses and stock options, that are paid
or granted to senior officers of the Company in connection with such officers'
initial hiring by the Company, or in connection with any amendments to or
extensions of the term of such senior officers' employment agreements with the
Company.
"Employment Term" shall mean the period beginning on the
Effective Date and ending on the close of business on the effective date of the
Executive's termination of employment with the Company.
"Excise Tax" shall mean the taxes imposed by Code Section
4999.
"Execution Options" shall have the meaning ascribed to such
term in Section 4(i)(b).
"Expiration Date" shall have the meaning ascribed to such term
in Section 2.
"Good Reason" shall mean (a) the Company's material breach of
any provision hereof, (b) the Executive no longer directly reporting to the
Chief Executive Officer or such other executive designated by the Chief
Executive Officer, (c) any adverse change in the Executive's job
responsibilities (except for responsibilities relating to acquisitions), duties,
functions, status, offices, title, perquisites or support staff, (d) relocation
of the Executive's regular work address outside of the Orlando metropolitan area
without his consent, or (e) a Change in Control; provided, however, that the
Executive shall give the Company written notice of any actions (other than that
set out in subsection (e) above) alleged to constitute Good Reason and the
Company shall have a reasonable opportunity to cure any such alleged Good
Reason.
"Minimal Time and Attention" shall mean such limited efforts
and duties of the Executive relating to the activities of SMD and Adventure
(each as hereafter defined) which do not interfere in any respect with the
Executive's duties under Section 3(a) hereunder.
"New Chancellor" shall mean, from and after the consummation
of the Capstar Merger, Chancellor Media Corporation, a Delaware corporation, as
successor by name change to Capstar.
"Option Agreement" shall mean the agreement between the
Executive and the Company pursuant to which any Options are granted to the
Executive.
3
"Option Plan" shall mean the 1998 Chancellor Media Corporation
Non-Qualified Stock Option Plan, as amended from time to time, and any successor
thereto.
"Options" shall mean the non-qualified stock options to be
granted to the Executive hereunder.
"Permanent Disability" shall mean the Executive's inability to
perform the duties contemplated by this Agreement by reason of a physical or
mental disability or infirmity which has continued for more than ninety (90)
working days (excluding vacation) in any twelve (12) consecutive month period as
determined by the Board. The Executive agrees to submit such medical evidence
regarding such disability or infirmity as is reasonably requested by the Board.
"Related Parties" shall mean with respect to any person (a)
the spouse and lineal ascendants and descendants of such person, and any sibling
of any of such persons and (b) any trust, corporation, partnership or other
entity, the beneficiaries, stockholders, partners, owners or persons
beneficially holding an eighty percent (80%) or more controlling interest of
which consist of persons referred to in subsection (a) above.
"Termination of Employment" shall mean the first to occur of
the following events:
(a) the date of death of the Executive;
(b) the effective date specified in the Company's
written notice to the Executive of the termination of his
employment as a result of his Permanent Disability, which
effective date shall not be earlier than the ninety-first
(91st) working day (excluding vacation) following the
commencement of the Executive's inability to perform his
duties hereunder;
(c) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment without Cause;
(d) the effective date specified in the Company's
written notice to the Executive of the Company's termination
of his employment for Cause;
(e) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment for Good Reason;
(f) the effective date specified in the Executive's
written notice to the Company of the Executive's termination
of his employment without Good Reason; and
4
(g) the date the Executive's employment terminates
pursuant to Section 2.
"Termination without Cause" shall mean a termination by the
Company of the Executive's employment without Cause.
2. EMPLOYMENT
The Company agrees to continue the employment of the
Executive, and the Executive agrees to continue to provide services to the
Company from the date of this Agreement until the close of business on the fifth
(5th) anniversary of the Effective Date (the "Expiration Date"), unless the
Executive's employment is earlier terminated pursuant to a Termination of
Employment. The Executive will serve the Company subject to the general
supervision, advice and direction of the Board and the Chief Executive Officer
and upon the terms and conditions set forth in this Agreement.
3. TITLE AND DUTIES
(a) The Executive's job title shall be President of the
Chancellor Outdoor Group, a division of the Company. Subject to the last
sentence of Section 13 of this Agreement, during the Employment Term, the
Executive shall have such authority and duties as are usual and customary for
similar positions within the Company, and shall perform such additional services
and duties as the Chief Executive Officer may from time to time designate
consistent with such position.
(b) The Executive shall report solely to the Chief Executive
Officer or to such other executive designated by the Chief Executive Officer.
Certain other senior officers of the Company, designated from time to time by
the Chief Executive Officer, may report, directly or indirectly through other
senior officers designated from time to time by the Chief Executive Officer, to
the Executive, and the Executive shall be responsible for reviewing the
performance of such senior officers of the Company.
(c) The Executive shall devote his full business time and best
efforts to the business affairs of the Company; however, the Executive may:
(i) devote reasonable time and attention to serving
as a director of, or member of a committee of the directors
of, any not-for-profit organization, or engaging in other
charitable or community activities;
(ii) devote Minimal Time and Attention to advisory
activities for SMD, LLP, a Georgia limited liability
partnership ("SMD") and Adventure Outdoor Advertising, Inc., a
Florida corporation ("Adventure"); provided, however, the
Executive shall not devote any time and attention to SMD
and/or Adventure after December 31, 1999; and
(iii) devote reasonable time and attention to serving
as a director of, or member of a committee of the directors
of, such other corporations
5
and organizations that the Chief Executive Officer may from
time to time approve in the future.
4. COMPENSATION AND BENEFITS
(a) Base Compensation. During the Employment Term, the Company
shall pay the Executive, in installments according to the Company's regular
payroll practice, Base Salary at the annual rate of Five Hundred Thousand
Dollars ($500,000) for the first (1st) Contract Year; and subject to increase
for each subsequent Contract Year an amount equal to the product of
(i) the Base Salary for the immediately preceding
Contract Year; and
(ii) the ratio of the Consumer Price Index for the
last complete calendar month in such preceding Contract Year
to the Consumer Price Index for the same month in the year
preceding such preceding Contract Year;
provided, however, that in no event shall the Base Salary in any subsequent
Contract Year be less than the Base Salary in the immediately preceding Contract
Year.
(b) Annual Incentive Bonus. The Executive shall be entitled to
an Annual Bonus of up to One Million Dollars ($1,000,000) for each calendar year
during which he is employed hereunder, subject to increases at the discretion of
the Compensation Committee based upon the recommendation of the Chief Executive
Officer of the Company. For each such calendar year one-half of the Annual Bonus
shall be based upon the Executive's performance and one-half of the Annual Bonus
shall be discretionary, in each case as measured against standards and budgets
to be mutually agreed between the Executive and the Chief Executive Officer,
with the amounts of the bonuses to be determined by the Compensation Committee
based upon the recommendation of the Chief Executive Officer of the Company;
provided, however, the Annual Bonus for any partial calendar year shall be
adjusted pro rata for the portion of the calendar year contained within the
Employment Term. The Executive's Annual Bonus earned with respect to each
calendar year shall be paid at the same time as annual incentive bonuses with
respect to that calendar year are paid to other senior executives of the Company
generally, but in no event later than March 31 of the following calendar year.
(c) Stock Options.
(i) On the Effective Date and each of the first four
(4) anniversaries of the Effective Date on which the Executive
remains employed hereunder, the Executive shall be granted an
Option to purchase Sixty Thousand (60,000) shares of Common
Stock. In the event the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive
for Good Reason prior to the Expiration Date, the Executive
shall be granted, as of the date of such Termination of
6
Employment, a number of Options equal to Three Hundred
Thousand (300,000) minus the number of Options previously
granted pursuant to the immediately preceding sentence.
(ii) All Options described in paragraph (i) above
shall be granted subject to the following terms and
conditions: (A) the Options shall be granted under and subject
to the Option Plan; (B) the exercise price of the Options
shall be, (1) in the case of the Options granted on the
Effective Date, $48.375 per share and (2) in the case of the
Options granted thereafter, the last reported sale price of
the Common Stock on the Nasdaq National Market System (or
other principal trading market for the Common Stock) at the
close of the trading day immediately preceding the date as of
which the grant is made; provided, however, that with respect
to any Options the grant of which is accelerated because the
Executive's employment is terminated either by the Company or
the Executive as a result of a Change in Control, the exercise
price of such Options shall be the lower of (x) the exercise
price equal to the average last reported sale price on the
Nasdaq National Market System (or other principal trading
market for the Common Stock) for the 30 trading days prior to
the ten trading days ending at the close of the trading day
immediately preceding the date any announcement of such Change
in Control is made and (y) an exercise price equal to the last
reported sale price of the Common Stock on the Nasdaq National
Market System (or other principal trading market for the
Common Stock) at the close of the trading day immediately
preceding the date as of which the grant is made; (C)
twenty-five percent (25%) of the Options shall vest on each of
the first four (4) annual anniversaries of the date of grant
if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Contract
Non-Renewal, all such Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Options shall vest and become exercisable on
the date of such Termination of Employment; (D) each Option
shall be exercisable for the ten (10) year period following
the date of grant; (E) each Option shall be evidenced by, and
subject to, an Option Agreement; and (F) the number of shares
granted shall be subject to adjustment for any subsequent
stock splits.
(iii) Except as otherwise provided in paragraph (ii)
above, the Option Agreements shall specify that such Options
shall remain exercisable for the periods described in
paragraph (ii) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
(d) Vacation. During each complete twelve (12) month period of
the Employment Term, the Executive shall be entitled to no fewer than four (4)
weeks of paid vacation (unless, based on his length of service with the Company
and his position
7
with the Company, the Executive is entitled to a greater number of weeks of paid
vacation under the Company's generally applicable vacation policy, as determined
by the Compensation Committee).
(e) Employee Benefit Plans. During the Employment Term, the
Executive shall be entitled to participate in all pension, profit sharing and
other retirement plans, all incentive compensation plans and all group health,
hospitalization and disability insurance plans and other employee welfare
benefit plans in which other senior executives of the Company may participate on
terms and conditions no less favorable than those which apply to such other
senior executives of the Company.
(f) Company Payment of Health Benefit Coverage. During the
Employment Term, the Company shall pay the amount of premiums or other cost
incurred for coverage of the Executive and his eligible spouse and dependent
family members under the applicable Company health benefits arrangement
(consistent with the terms of such arrangement).
(g) Life Insurance Policy. In addition to the insurance
coverage contemplated by Section 4(e), during the Employment Term, the Company
shall maintain in effect term life insurance coverage for the Executive with a
death benefit of at least Five Hundred Thousand Dollars ($500,000), subject to
the Executive's insurability at standard rates and with the beneficiary or
beneficiaries, thereof designated by the Executive. Notwithstanding Section 9 of
this Agreement, such life insurance policy or policies may be assigned to a
trust for the benefit of any beneficiary designated by the Executive.
(h) Automobile and Parking Allowance; Other Benefits.
(i) During the Employment Term, the Company shall (A)
either provide the Executive with, or pay or reimburse the
Executive for his purchase or lease of an automobile selected
by the Executive with a retail sales price of not more than
Seventy Thousand Dollars ($70,000), which automobile may be
traded no more frequently than every three (3) years, and (B)
pay all insurance and all other expenses related to the
business operation of such automobile.
(ii) During the Employment Term, the Company shall
reimburse the Executive for the monthly membership fees in
connection with (A) the membership of the Executive and his
spouse and dependent family members in the country club of
Executive's choosing, and (B) the membership of the Executive
and his spouse and dependent family members in an athletic
club of Executive's choosing.
(i) Execution Bonus. The Executive shall be paid or granted,
as the case may be, the following Employment Inducements:
(a) Within fifteen (15) days after the execution and
delivery of the Prior Employment Agreement, the Company shall
pay to the
8
Executive a one-time execution bonus in the gross amount of
One Million Dollars ($1,000,000);
(b) The Executive shall be granted an option to
purchase Three Hundred Thousand (300,000) shares of Common
Stock (collectively, the "Execution Options"), subject to the
following terms and conditions: (A) the Execution Options
shall be granted under and subject to the Option Plan; (B) the
exercise price of the Execution Options shall be $48.375 per
share (the price per share at the close of trading on August
7, 1998); (C) twenty-five percent (25%) of the Execution
Options shall vest on the Effective Date and twenty-five
percent (25%) of the Execution Options shall vest on each of
the first three (3) annual anniversaries of the date of grant
if and to the extent that a Termination of Employment has not
occurred, provided that in the event of a Contract
Non-Renewal, all such Execution Options shall vest and become
exercisable on the Expiration Date and in the event of a
Termination of Employment by the Executive for Good Reason or
a Termination of Employment by the Company other than for
Cause, all such Execution Options shall vest and become
exercisable on the date of such Termination of Employment; (D)
each Execution Option shall be exercisable for the ten (10)
year period following the date of grant; (E) each Execution
Option shall be evidenced by, and subject to, an Option
Agreement; and (F) the number of shares granted shall be
subject to adjustment for any subsequent stock splits; and
(c) Except as otherwise provided in paragraph (b)
above, the Option Agreements shall specify that the Execution
Options shall remain exercisable for the periods described in
paragraph (b) above notwithstanding any Termination of
Employment, other than a Termination of Employment by the
Company for Cause.
5. REIMBURSEMENT OF EXPENSES
In addition to the compensation provided for under Section 4
hereof, upon submission of proper vouchers, the Company will pay or reimburse
the Executive for all normal and reasonable travel and entertainment expenses
incurred by the Executive during the Employment Term in connection with the
Executive's responsibilities to the Company.
6. TERMINATION BENEFITS
(a) Upon the termination of the Executive's employment with
the Company for any reason, the Company shall provide the Executive (or, in the
case of his death, his estate or other legal representative), (i) any Annual
Bonus earned but not yet paid with respect to the preceding calendar year, (ii)
all benefits due him under the Company's benefits plans and policies for his
services rendered to the Company prior to the date of such termination
(according to the terms of such plans and policies), (iii) not later than ninety
(90) days after such termination, in a lump sum, all Base Salary earned
9
through the date of such termination, and (iv) not later than ninety (90) days
after such termination, in a lump sum, any Annual Bonus earned with respect to
that portion of the calendar year prior to such termination.
(b) In the event that the Executive's employment hereunder is
terminated by the Company without Cause or by the Executive for Good Reason (but
not by reason of expiration or non-renewal of this Agreement), and subject to
the last sentence of this subsection (b), the Company shall make a one-time cash
payment to the Executive in a gross amount such that the net payments retained
by the Executive after payment of any applicable Excise Tax with respect to such
payment shall equal One Million Dollars ($1,000,000). Such payment shall be made
at the time of any such termination without Cause or within thirty (30) days of
any such resignation for Good Reason. Such payment shall be in full satisfaction
of all obligations of the Company to Executive hereunder (other than those
obligations set forth in Sections 4(c), 4(i)(b) and 6(a)) and shall be
conditioned on Executive giving a general release of the Company and affiliates
in the form used generally by the Company in the case of the termination of
employment of senior executives.
(c) (i) In the event that the Executive elects to
terminate his employment hereunder other than for Good Reason,
the Company, in consideration for the Executive's agreement in
Section 7(b), shall continue to pay him one-half of his Base
Salary as set forth in Section 4(a) through the earlier of (A)
the fifth (5th) anniversary of the Effective Date or (B) the
second (2nd) anniversary of such termination of employment
(the earlier of such dates, the "Cessation Date").
(ii) In addition, in such event, the Company may, by
written notice to the Executive given no later than 15 days
following his termination of employment, elect to require the
Executive to observe the provisions of Section 7(c) hereof. In
such event, the Company shall, on the last day of each
calendar year preceding the Cessation Date, make a payment to
him equal to one-half of his Average Bonus, and on the last
day of the calendar year which includes the Cessation Date
make a payment to him equal to the product of one-half of his
Average Bonus and the fraction of such calendar year which
precedes the Cessation Date.
(d) In the event of any Termination of Employment, the
Executive shall not be required to seek other employment to mitigate damages,
and any income earned by the Executive from other employment or self-employment
shall not be offset against any obligations of the Company to the Executive
under this Agreement.
7. PROTECTED INFORMATION; PROHIBITED SOLICITATION
(a) The Executive hereby recognizes and acknowledges that
during the course of his employment by the Company, the Company will furnish,
disclose or make available to the Executive confidential or proprietary
information related to the Company's business, including, without limitation,
customer lists, ideas and formatting
10
and programming concepts and plans, that such confidential or proprietary
information has been developed and will be developed through the Company's
expenditure of substantial time and money, and that all such confidential
information could be used by the Executive and others to compete with the
Company. The Executive hereby agrees that all such confidential or proprietary
information shall constitute trade secrets, and further agrees to use such
confidential or proprietary information only for the purpose of carrying out his
duties with the Company and not to disclose such information unless required to
do so by subpoena or other legal process. No information otherwise in the public
domain (other than by an act of the Executive in violation hereof) shall be
considered confidential.
The Executive further agrees that all memoranda, notices,
files, records and other documents concerning the business of the Company, made
or compiled by the Executive during the period of his employment or made
available to him, shall be the Company's property and shall be delivered to the
Company upon its request therefor and in any event upon the termination of the
Executive's employment with the Company, provided, however, that the Executive
shall be permitted to retain copies of personal correspondence generated or
received by him during the Employment Term, subject to the use restrictions of
this Section 7(a).
(b) The Executive hereby agrees, in consideration of his
employment hereunder and in view of the confidential position to be held by the
Executive hereunder, that after any Termination of Employment, and through the
Expiration Date the Executive will not directly or indirectly induce any
employee of any of the Protected Companies (as defined below) to terminate such
employment or to become employed by any other media company.
(c) Should the Company make the election set forth in Section
6(c)(ii), the Executive further agrees that, from and after the Termination of
Employment and through the Expiration Date, he shall not be employed by or
perform activities on behalf of, or have an ownership interest in, (i) any radio
or television broadcasting station or outdoor advertising company serving the
same "Area of Dominant Influence" (as reported by Arbitron) as any of the radio
or television broadcasting stations or outdoor advertising company owned by the
Company or its subsidiaries or affiliates, or the subsidiaries or affiliates of
any of the Company's direct or indirect stockholders owning more than twenty
percent (20%) of the Company (collectively the "Protected Companies"), or (ii)
any person, firm, corporation or other entity, or in connection with any
business enterprise, that is directly or indirectly engaged in any of the radio,
television, outdoor advertising or related business activities in which the
Company and its subsidiaries or the Protected Companies have significant
involvement (collectively, the "Competing Business Areas"), in each case at the
effective time of such Termination of Employment (other than beneficial
ownership of up to five percent (5%) of the outstanding voting stock of a
publicly traded company that owns such a competitor).
(d) The restrictions in this Section 7, to the extent
applicable, shall survive the termination of this Agreement and shall be in
addition to any restrictions imposed upon the Executive by statute or at common
law.
11
(e) The parties hereby acknowledge that the restrictions in
this Section 7 have been specifically negotiated and agreed to by the parties
hereto and are limited only to those restrictions necessary to protect the
Protected Companies from unfair competition. The parties hereby agree that if
the scope or enforceability of any provision, paragraph or subparagraph of this
Section 7 is in any way disputed at any time, and should a court find that such
restrictions are overly broad, the court may modify and enforce the covenant to
the extent that it believes to be reasonable under the circumstances. Each
provision, paragraph and subparagraph of this Section 7 is separable from every
other provision, paragraph, and subparagraph and constitutes a separate and
distinct covenant. The Executive acknowledges that the Protected Companies
operate in major and medium sized markets throughout the United States and that
the effect of Section 7(c) may be to prevent him from working in the Competing
Business Areas after his termination of employment hereunder.
8. INJUNCTIVE RELIEF
The Executive hereby expressly acknowledges that any breach or
threatened breach by the Executive of any of the terms set forth in Section 7 of
this Agreement may result in significant and continuing injury to the Company,
the monetary value of which would be impossible to establish. Therefore, the
Executive agrees that the Company shall be entitled to apply for injunctive
relief in a court of appropriate jurisdiction. The provisions of this Section 8
shall survive the Employment Term.
9. PARTIES BENEFITED; ASSIGNMENTS
This Agreement shall be binding upon the Executive, his heirs
and his personal representative or representatives, and upon the Company and Los
Angeles and their respective successors and assigns. Neither this Agreement nor
any rights or obligations hereunder may be assigned by the Executive, other than
by will or by the laws of descent and distribution. From and after the
consummation of the Capstar Merger, all rights and obligations of the Company
under this Agreement shall be assigned to and assumed by the New Chancellor. The
consummation of the Capstar Merger shall not constitute a Change in Control.
10. NOTICES
Any notice required or permitted by this Agreement shall be in
writing, sent by registered or certified mail, return receipt requested,
addressed to the Board and the Company at its then principal office, or to the
Executive at the address set forth in the preamble, as the case may be, or to
such other address or addresses as any party hereto may from time to time
specify in writing for the purpose in a notice given to the other parties in
compliance with this Section 10. Notices shall be deemed given when received.
12
11. GOVERNING LAW
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to conflict of
law principles.
12. INDEMNIFICATION AND INSURANCE; LEGAL EXPENSES
The Company shall indemnify the Executive to the fullest
extent permitted by the laws of the State of Delaware, as in effect at the time
of the subject act or omission, and shall advance to the Executive reasonable
attorneys' fees and expenses as such fees and expenses are incurred (subject to
an undertaking from the Executive to repay such advances if it shall be finally
determined by a judicial decision which is not subject to further appeal that
the Executive was not entitled to the reimbursement of such fees and expenses)
and he will be entitled to the protection of any insurance policies the Company
may elect to maintain generally for the benefit of its directors and officers
("Directors and Officers Insurance") against all costs, charges and expenses
incurred or sustained by him in connection with any action, suit or proceeding
to which he may be made a party by reason of his being or having been a
director, officer or employee of the Company or any of its subsidiaries or his
serving or having served any other enterprise as a director, officer or employee
at the request of the Company (other than any dispute, claim or controversy
arising under or relating to this Agreement). The Company covenants to maintain
during the Employment Term for the benefit of the Executive (in his capacity as
an officer and director of the Company) Directors and Officers Insurance
providing benefits to the Executive no less favorable, taken as a whole, than
the benefits provided to the Executive by the Directors and Officers Insurance
maintained by the Company on the date hereof; provided, however, that the Board
may elect to terminate Directors and Officers Insurance for all officers and
directors, including the Executive, if the Board determines in good faith that
such insurance is not available or is available only at unreasonable expense.
13. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE
The Executive represents and warrants to the Company that (a)
the Executive is under no contractual or other restriction which is inconsistent
with the execution of this Agreement, the performance of his duties hereunder or
the other rights of Company hereunder, and (b) the Executive is under no
physical or mental disability that would hinder the performance of his duties
under this Agreement. Notwithstanding the foregoing, the parties hereto
recognize that the Executive is restricted from certain activities within the
State of Florida and in areas of Chattanooga, Tennessee and Myrtle Beach, South
Carolina, by the terms of an employment agreement with Peterson Acquisition,
Inc. ("Peterson"), the terms of which are, to the best of the Executive's
knowledge, presently enforceable by Clear Channel Communications, Inc., pursuant
to subsequent acquisition transactions involving the business operations of
Peterson (the "Clear Channel Agreement"), and accordingly the Executive shall
have no responsibilities that would violate the non-competition provisions of
the Clear Channel
13
Agreement until the earlier to occur of (i) January 1, 1999 or (ii) such time as
the Executive obtains a waiver of such non-competition provisions.
14. DISPUTES
Any dispute or controversy arising under, out of, in
connection with or in relation to this Agreement shall, at the election and upon
written demand of either the Executive or the Company, be finally determined and
settled by arbitration in the city of the Company's headquarters in accordance
with the rules and procedures of the American Arbitration Association, and
judgment upon the award may be entered in any court having jurisdiction thereof.
The Company shall pay the costs and expenses of such arbitration and the fees of
the Executive's counsel and experts unless the finder of fact determines that
the Company is the prevailing party in such arbitration.
15. FACILITY OF PAYMENT
All cash payments to be made by the Company to or on behalf of
the Executive hereunder shall be an obligation of and made by Los Angeles.
16. MISCELLANEOUS
The provisions of this Agreement shall survive the termination
of the Executive's employment with the Company. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof. This
Agreement supersedes any prior written or oral agreements or understandings
between the parties relating to the subject matter hereof. No modification or
amendment of this Agreement shall be valid unless in writing and signed by or on
behalf of the parties hereto. A waiver of the breach of any term or condition of
this Agreement shall not be deemed to constitute a waiver of any subsequent
breach of the same or any other term or condition. This Agreement is intended to
be performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations. If any provision of this
Agreement, or the application thereof to any person or circumstance, shall, for
any reason and to any extent, be held invalid or unenforceable, such invalidity
and unenforceability shall not affect the remaining provisions hereof and the
application of such provisions to other persons or circumstances, all of which
shall be enforced to the greatest extent permitted by law. The compensation
provided to the Executive pursuant to this Agreement shall be subject to any
withholdings and deductions required by any applicable tax laws. Any amounts
payable under this Agreement to the Executive after the death of the Executive
shall be paid to the Executive's estate or legal representative. The headings in
this Agreement are inserted for convenience of reference only and shall not be a
part of or control or affect the meaning of any provision hereof. This Agreement
may be executed in any number of counterparts, each of which when so executed
shall be an original, but such counterparts shall together constitute one and
the same agreement.
14
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the date first written above.
CHANCELLOR MEDIA CORPORATION
CHANCELLOR MEDIA CORPORATION OF
LOS ANGELES
By: /s/ JEFFREY A. MARCUS
----------------------------------------
Jeffrey A. Marcus
President and Chief Executive Officer
/s/ JAMES A. MCLAUGHLIN, JR.
-------------------------------------------
James A. McLaughlin, Jr.
EXHIBIT 12.1
CHANCELLOR MEDIA CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
PRO FORMA
ACTUAL NINE ACTUAL NINE COMBINED
MONTHS MONTHS YEAR
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
-------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1996 1997 1997 1998 1997
-------- ------- ------- -------- -------- ------------- ------------- ------------
Earnings:
Income (loss) before
income taxes.......... $(20,749) $ 39 $(5,658) $(19,090) $ (6,692) $ 5,882 $ 28,199 $ (849,353)
Fixed charges........... 15,086 15,252 20,854 40,461 109,173 51,819 169,312 651,095
Less: Dividends on
preferred stock of
subsidiary(1)......... -- -- -- -- (19,848) (4,275) (27,078) (40,074)
-------- ------- ------- -------- -------- ------- --------- ----------
Earnings as
adjusted(A)........... (5,663) 15,291 15,196 21,371 82,633 53,426 170,433 (238,332)
======== ======= ======= ======== ======== ======= ========= ==========
Fixed Charges:
Interest expense........ 13,878 13,809 19,199 37,527 85,017 45,036 135,709 595,080
Amortization of deferred
financing costs....... 728 712 631 1,113 1,337 885 2,133 6,774
Dividends on preferred
stock of
subsidiary(1)......... -- -- -- -- 19,848 4,275 27,078 40,074
Rents under leases
representative of an
interest factor(2).... 480 731 1,024 1,821 2,971 1,623 4,392 9,167
-------- ------- ------- -------- -------- ------- --------- ----------
Fixed charges as
adjusted................ 15,086 15,252 20,854 40,461 109,173 51,819 169,312 651,095
Preferred stock
dividends(1)............ 7,317 7,431 7,431 5,877 18,715 8,843 29,618 26,840
-------- ------- ------- -------- -------- ------- --------- ----------
Total fixed charges and
preferred stock
dividends(B)............ 22,403 22,683 28,285 46,338 127,888 60,662 198,930 677,935
======== ======= ======= ======== ======== ======= ========= ==========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (A) divided by
(B)..................... -- -- -- -- -- -- -- --
Deficiency of earnings to
combined fixed charges
and preferred stock
dividends (B) minus
(A)..................... $ 28,066 $ 7,392 $13,089 $ 24,967 $ 45,255 $ 7,236 $ 28,497 $ 916,267
PRO FORMA
COMBINED
NINE MONTHS
ENDED
SEPTEMBER 30,
1998
-------------
Earnings:
Income (loss) before
income taxes.......... $(478,724)
Fixed charges........... 492,916
Less: Dividends on
preferred stock of
subsidiary(1)......... (33,822)
---------
Earnings as
adjusted(A)........... (19,630)
=========
Fixed Charges:
Interest expense........ 446,310
Amortization of deferred
financing costs....... 5,080
Dividends on preferred
stock of
subsidiary(1)......... 33,822
Rents under leases
representative of an
interest factor(2).... 7,704
---------
Fixed charges as
adjusted................ 492,916
Preferred stock
dividends(1)............ 29,618
---------
Total fixed charges and
preferred stock
dividends(B)............ 522,534
=========
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (A) divided by
(B)..................... --
Deficiency of earnings to
combined fixed charges
and preferred stock
dividends (B) minus
(A)..................... $ 542,164
(1) Represents pretax earnings required to cover preferred stock dividends.
(2) Management of Chancellor Media believes approximately one-third of rental
and lease expense is representative of the interest component of rent
expense.
Exhibit 21.1
SUBSIDIARIES OF CHANCELLOR MEDIA CORPORATION
HOLDING COMPANY SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Chancellor Mezzanine Holdings Corporation Delaware
Katz Media Group, Inc. Delaware
RADIO SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Broadcast Architecture, Inc. Massachusetts
Cadena Estereotempo, Inc. Puerto Rico
Chancellor Media Corporation of California Delaware
Chancellor Media Corporation of Charlotte Delaware
Chancellor Media Corporation of Houston Delaware
Chancellor Media Corporation of Illinois Delaware
Chancellor Media Corporation of the Keystone State Delaware
Chancellor Media Corporation of Los Angeles Delaware
Chancellor Media Corporation of the Lone Star State Delaware
Chancellor Media Corporation of Massachusetts Delaware
Chancellor Media Corporation of Miami Delaware
Chancellor Media Corporation of Michigan Delaware
Chancellor Media Corporation of New York Delaware
Chancellor Media Corporation of Ohio Delaware
Chancellor Media Corporation of St. Louis Delaware
Chancellor Media Corporation of Washington, D.C. Delaware
Chancellor Media/KCMG, Inc. Delaware
Chancellor Media Licensee Company Delaware
Chancellor Media of Houston Limited Partnership Delaware
Chancellor Media Pennsylvania License Corp. Delaware
Chancellor Media Radio Licenses, LLC Delaware
Chancellor Media/Riverside Broadcasting Co., Inc. Delaware
Chancellor Media/Shamrock Broadcasting, Inc. Delaware
Chancellor Media/Shamrock Broadcasting of Texas, Inc. Texas
Chancellor Media/Shamrock Radio Licenses, LLC Delaware
Chancellor Media/WAXQ, Inc. Delaware
Cleveland Radio Licenses, LLC Delaware
KLOL License Limited Partnership Delaware
KZPS/KDGE License Corp. Delaware
Portorican American Broadcasting, Inc. Puerto Rico
Primedia Broadcast Group, Inc. Puerto Rico
Radio 100, L.L.C. Delaware
WAXQ License Corp. Delaware
WIO, Inc. Puerto Rico
WIOQ License Corp. Delaware
SUBSIDIARIES OF CHANCELLOR MEDIA CORPORATION
(cont.)
WLDI, Inc. Puerto Rico
WLTW License Corp. Puerto Rico
WNZT, Inc. Puerto Rico
WOQI, Inc. Puerto Rico
WOYE, Inc. Puerto Rico
WRPC, Inc. Puerto Rico
WTOP License Limited Partnership Delaware
Zebra Broadcasting Corporation Ohio
MEDIA REPRESENTATION SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Amcast Radio Sales, Inc. Delaware
Christal Radio Sales, Inc. Delaware
Eastman Radio Sales, Inc. Delaware
Katz Cable Corporation Delaware
Katz Communications, Inc. Delaware
Katz International Limited England
Katz Media Corporation Delaware
Katz Millennium Marketing, Inc. Delaware
Katz Radio Sales Limited England
Katz Television Sales Limited England
National Cable Communications, L.P. Delaware
The National Payroll Company, Inc. Delaware
Seltel, Inc. Delaware
OUTDOOR SUBSIDIARIES
NAME OF ENTITY STATE OF INCORPORATION
Chancellor Media MW Sign Corporation Delaware
Chancellor Media Martin Corporation Delaware
Chancellor Media Nevada Sign Corporation Delaware
Chancellor Media Outdoor Corporation Delaware
Chancellor Media Whiteco Outdoor Corporation Delaware
Dowling Company Incorporated Virginia
Hardin Development Corp. Florida
Martin & MacFarlane, Inc. California
Martin Media, L.P. California
MW Sign Corp. California
Nevada Outdoor Systems, Inc. Nevada
Parsons Development Company Florida
Revolution Outdoor Advertising, Inc. Florida
Western Poster Service, Inc. Texas
2
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our reports dated February 10, 1998, except for
Notes 2(b) paragraphs 1 and 3-5 as to which the date is February 20, 1998 and
9(b) paragraph 6 as to which the date is March 13, 1998, on our audits of the
consolidated financial statements and financial statement schedules of
Chancellor Media Corporation and Subsidiaries as of December 31, 1997 and for
the year then ended. We also consent to the reference to our firm under the
caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation:
We consent to the use of our reports on the following financial statements: 1)
the consolidated balance sheet of Chancellor Media Corporation and Subsidiaries
as of December 31, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996; 2) the combined balance sheets of WMZQ Inc. and Viacom Broadcasting East,
Inc. as of December 31, 1995 and 1996 and the related combined statements of
earnings and cash flows for each of the years in the three-year period ended
December 31, 1996; 3) the combined balance sheets of Riverside Broadcasting Co.,
Inc. and WAXQ Inc. as of December 31, 1995 and 1996 and the related combined
statements of earnings and cash flows for each of the years in the three-year
period ended December 31, 1996; 4) the balance sheets of WLIT Inc. as of
December 31, 1995 and 1996 and the related statements of earnings and cash flows
for each of the years in the three-year period ended December 31, 1996; and 5)
the combined balance sheets of KYSR Inc. and KIBB Inc. as of December 31, 1995
and 1996 and the related combined statements of operations and cash flows for
each of the years in the three-year period ended December 31, 1996. We also
consent to the reference to our firm under the heading "Experts" in the Joint
Proxy Statement/Prospectus.
KPMG LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 13, 1997, except for
Note 15 as to which the date is February 19, 1997, on our audits of the
consolidated financial statements of Chancellor Broadcasting Company and
Subsidiaries as of December 31, 1995 and 1996 and for each of the three years in
the period ended December 31, 1996. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Chancellor Media Corporation:
We consent to the use of our report dated March 28, 1997, relating to the
balance sheet of WDAS-AM/FM (station owned and operated by Beasley FM
Acquisition Corp.) as of December 31, 1996 and the related statements of
earnings and station equity and cash flows for the year ended December 31, 1996,
and the reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
KPMG LLP
St. Petersburg, Florida
February 16, 1999
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our report
dated March 31, 1997 (and to all references to our Firm) included in this Joint
Proxy Statement/Prospectus on form S-4 dated February 17, 1999 of Chancellor
Media Corporation.
Arthur Andersen LLP
Washington, D.C.
February 17, 1999
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 19, 1998, except for Note 2, as to which the
date is March 3, 1998 with respect to the consolidated financial statements of
LIN Television Corporation included in the Registration Statement (Form S-4, No.
33- ) and related Joint Proxy Statement/Prospectus of Chancellor Media
Corporation for the registration of shares of its common stock.
Ernst & Young LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.8
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting a part of Chancellor Media Corporation's Registration Statement on
Form S-4 of our report dated September 17, 1998, relating to the financial
statements of the Outdoor Advertising Division of Whiteco Industries, Inc.,
which are contained in the Joint Proxy Statement/Prospectus.
We also consent to the reference to us under the caption "Experts" in the Joint
Proxy Statement/Prospectus.
BDO Seidman, LLP
Chicago, Illinois
February 16, 1999
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated March 26, 1998, on our audits
of the consolidated financial statements of Capstar Broadcasting Corporation and
Subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
February 16, 1999
EXHIBIT 23.10
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 10, 1997 with respect to the consolidated
financial statements of Commodore Media, Inc. and Subsidiaries, included in the
Joint Proxy Statement/ Prospectus of Chancellor Media Corporation that is made a
part of the Registration Statement (Form S-4) and Prospectus of Chancellor Media
Corporation to approve and adopt the Agreement and Plan of Merger between
Chancellor Media Corporation and Ranger Equity Holdings Corporation.
Ernst & Young LLP
New York, New York
February 16, 1999
EXHIBIT 23.11
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 5, 1998, except for Notes 2 and 14 as to which the
date is April 27, 1998 with respect to the consolidated financial statements of
SFX Broadcasting, Inc. and Subsidiaries, included in the Joint Proxy
Statement/Prospectus of Chancellor Media Corporation that is made a part of the
Registration Statement (Form S-4) and Prospectus of Chancellor Media Corporation
to approve and adopt the Agreement and Plan of Merger between Chancellor Media
Corporation and Ranger Equity Holdings Corporation.
Ernst & Young LLP
New York, New York
February 16, 1999
EXHIBIT 23.12
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our reports
dated February 13, 1998 (and to all references to our Firm) included in this
Joint Proxy Statement/Prospectus of Chancellor Media Corporation.
Arthur Andersen LLP
Bakersfield, California
February 16, 1999
EXHIBIT 23.13
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Chancellor Media Corporation:
As independent public accountants, we hereby consent to the use of our report
dated August 25, 1995 (and to all references to our Firm) included in this Joint
Proxy Statement/Prospectus of Chancellor Media Corporation.
Barbich Longcrier Hooper & King
Accountancy Corporation
/s/ GEOFFREY B. KING
------------------------------------
By: Geoffrey B. King, CPA
Bakersfield, California
February 16, 1999
EXHIBIT 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 16, 1999 on our audits
of the statement of assets acquired as of May 29, 1998 and the related
statements of revenues and direct operating expenses of KODA-FM for each of the
two years ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Chancellor Media Corporation:
We consent to the inclusion in this Joint Proxy Statement/Prospectus of
Chancellor Media Corporation of our report dated February 16, 1999 on our audits
of the combined statement of assets acquired as of April 3, 1998 and the related
combined statements of revenues and direct operating expenses of KBIG-FM,
KLDE-FM and WBIX-FM (formerly WNSR-FM) for each of the three years ended
December 31, 1997. We also consent to the reference to our firm under the
caption "Experts".
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 16, 1999
EXHIBIT 23.16
[LETTERHEAD OF WASSERSTEIN PERELLA & CO., INC.]
CONSENT OF WASSERSTEIN PERELLA & CO., INC.
We hereby consent to (i) the use of our opinion letter dated July 7,
1998 to the Special Committee of the board of Directors of Chancellor Media
Corporation ("Chancellor Media"), included as Annex II to the Joint Proxy
Statement/Prospectus which forms a part of the Registration Statement on Form
S-4 relating to the proposed merger of a substantially wholly owned subsidiary
of LIN Television Corporation with and into Chancellor Media, and (ii) the
references to such opinion in such Proxy Statement/Prospectus. In providing
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we hereby admit that we are "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Wasserstein Perella & Co., Inc.
By:
Name:
Title:
Date:
EXHIBIT 23.17
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
We hereby consent to the use of Annex III containing our opinion letter
dated July 7, 1998 (the "Opinion") to the Board of Directors of Chancellor Media
Corporation ("Chancellor") in the Joint Proxy Statement/Prospectus constituting
a part of the registration statement on Form S-4 of Chancellor relating to the
proposed business combination of Chancellor and Ranger Equity Holdings
Corporation ("LIN") and to the references to our firm name in the Joint Proxy
Statement/Prospectus in connection with references to the Opinion. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder (collectively, the "Act"), nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Dated: February 11, 1999
Morgan Stanley & Co. Incorporated
By: /s/ PAUL J. TAUBMAN
---------------------------
Name: Paul J. Taubman
Title: Managing Director
EXHIBIT 23.18
CONSENT OF GREENHILL & CO., LLC
We hereby consent to the use of our opinion letter dated July 7, 1998
to the Board of Directors of Ranger Equity Holdings Corporation, included as
Annex IV to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 relating to the proposed business combination
of Chancellor Media Corporation and Ranger Equity Holdings Corporation and to
the references to our firm name in the Joint Proxy Statement/Prospectus in
connection with references to our opinion. In providing such consent, we do not
admit and we disclaim that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder (collectively, the "Act"), nor do we admit and we disclaim that we
are experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
Dated: February 11 , 1999
Greenhill & Co., LLC
By: /s/ SCOTT L. BOK
--------------------------------
Name: Scott L. Bok
------------------------------
Title: Managing Director
-----------------------------
EXHIBIT 23.19
[VINSON & ELKINS L.L.P. LETTERHEAD]
February 11, 1999
We hereby consent to the reference to us under the heading "Legal Matters" in
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed business combination of
Chancellor Media Corporation and Ranger Equity Holdings Corporation. In giving
this consent, we do not hereby admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
EXHIBIT 99.1
CERTIFICATE OF INCORPORATION
OF
RANGER EQUITY HOLDINGS CORPORATION
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the Delaware General
Corporation Law ("Delaware Law"), do hereby adopt the following Certificate of
Incorporation for the Corporation:
FIRST: The name of the Corporation is Ranger Equity Holdings
Corporation.
SECOND: The registered office of the Corporation in the State of
Delaware is located at 1013 Centre Road, the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at such address is
the Corporation Service Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any and all lawful acts and activity for which corporations may now or
hereafter be organized under Delaware Law. The Corporation shall have all powers
that may now or hereafter be lawful for a corporation to exercise under Delaware
Law and shall have perpetual existence.
FOURTH: The total number of shares of capital stock of all classes that
the Corporation shall have authority to issue is 1,005,000,000 shares. The
authorized capital stock is divided into 5,000,000 shares of preferred stock,
par value $.01 per share (the "Preferred Stock"), and 1,000,000,000 shares of
common stock, par value $.01 per share (the "Common Stock").
The shares of Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series thereof, the shares of each class
or series thereof to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, as are stated and expressed herein or in the resolution or resolutions
providing for the issue of such class or series, adopted by the board of
directors of the Corporation (the "Board of Directors") as hereinafter provided.
Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article Fourth and to the limitations
prescribed by Delaware Law, to authorize the issue of one or more classes, or
series thereof, of Preferred Stock and
with respect to each such class or series to fix by resolution or resolutions
providing for the issue of such class or series the voting powers, full or
limited, if any, of the shares of such class or series and the designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof. The authority of the Board
of Directors with respect to each class or series thereof shall include, but not
be limited to, the determination or fixing of the following:
(i) the maximum number of shares to constitute such class or
series, which may subsequently be increased or decreased by resolutions of the
Board of Directors unless otherwise provided in the resolution providing for the
issue of such class or series, the distinctive designation thereof and the
stated value thereof if different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions
and dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes of
stock or any other series of any class of stock of the Corporation, and whether
such dividends shall be cumulative or noncumulative;
(iii) whether the shares of such class or series shall be
subject to redemption, in whole or in part, and if made subject to such
redemption the times, prices and other terms and conditions of such redemption,
including whether or not such redemption may occur at the option of the
Corporation or at the option of the holder or holders thereof or upon the
happening of a specified event;
(iv) the terms and amount of any sinking fund established for
the purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class or classes of any
stock or any other series of any class of stock of the Corporation, and, if
provision is made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of
such class or series shall be entitled to vote with respect to the election of
directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such class
or series upon the dissolution of, or upon the subsequent distribution of assets
of, the Corporation; and
(ix) the manner in which any facts ascertainable outside the
resolution or resolutions providing for the issue of such class or series shall
operate upon the voting
2
powers, designations, preferences, rights and qualifications, limitations or
restrictions of such class or series.
The shares of Common Stock of the Corporation shall be of one
and the same class. The holders of Common Stock shall have one vote per share of
Common Stock on all matters on which holders of Common Stock are entitled to
vote.
FIFTH: The name of the incorporator of the Corporation is
Antonios C. Backos, and the mailing address of such incorporator is c/o Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, NY 10153.
SIXTH: The number of directors constituting the initial Board
of Directors is four, and the name and mailing address of each person who is to
serve as director until the first annual meeting of stockholders or until his
successor is elected and qualified are as follows:
Thomas O. Hicks 200 Crescent Court, Suite 1600
Chairman Dallas, Texas 75201
Eric C. Neuman 200 Crescent Court, Suite 1600
Dallas, Texas 75201
Michael J. Levitt 1325 Avenue of the Americas, 25th Floor
New York, New York 10019
Gary R. Chapman 1 Richmond Square, Suite 230E
Providence, Rhode Island 02906
SEVENTH: Directors of the Corporation need not be elected by
written ballot unless the bylaws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power
to adopt, amend, and repeal the bylaws of the Corporation.
NINTH: No contract or transaction between the Corporation and
one or more of its directors, officers, or stockholders or between the
Corporation and any person (as used herein "person" means other corporation,
partnership, association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the Board of Directors or committee which authorizes the contract or
transaction,or solely because his, her, or
3
their votes are counted for such purpose, if: (i) the material facts as to his
or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specially approved in good faith by
vote of the stockholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized approved, or ratified by the Board
of Directors or of a committee which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is,
or is threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under Delaware Law, as the same exists or may
hereinafter be amended. Such right shall be a contract right and as such shall
run to the benefit of any director or officer who is to serve as a director or
officer of the Corporation while this Article Tenth is in effect. Any repeal or
amendment of this Article Tenth shall be prospective only and shall not limit
the rights to any such director or officer or the obligations of the Corporation
with respect to any claim arising from or related to the services of such
director or officer in any of the foregoing capacities prior to any such repeal
or amendment to this Article Tenth. Such right shall include the right to be
paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition to the maximum extent permitted under Delaware
Law, as the same exists or may hereafter be amended. If a claim for
indemnification or advancement of expenses hereunder is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and if successful in
whole or in part, the claimant shall also be entitled to be paid the expenses of
prosecuting such claim. It shall be a defense to any such action that such
indemnification or advancement of costs of defense are not permitted under
Delaware Law, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or any committee thereof, independent legal counsel, or stockholders)
to have made it determination prior to the commencement of such action that
indemnification of, or advancement of costs of defense to, the claimant is
permissible in the circumstances nor an actual determination by the Corporation
(including its Board of Directors or any committee thereof, independent legal
counsel, or stockholders) that such indemnification or advancement is not
permissible shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death of
4
any person having a right of indemnification under the foregoing provisions,
such right shall inure to the benefit of his or her heirs, executors,
administrators, and personal representatives. The rights conferred above shall
not be exclusive of any other right which any person may have or hereafter
acquire under any statue, by-law, resolution of stockholders or directors,
agreement, or otherwise.
The Corporation may additionally indemnify any employee or
agent of the Corporation to the fullest extent permitted by Delaware Law, as the
same exists or may hereafter be amended.
As used herein, the term "proceeding" means any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to such an
action, suit, or proceeding.
ELEVENTH: A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) under Section 174 of Delaware Law,
or (iv) for any transaction from which the director derived an improper personal
benefit. Any repeal or amendment of this Article Eleventh by the stockholders of
the Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article
Eleventh, a director shall not be liable to the Corporation or its stockholders
to such further extent as permitted by any law hereafter enacted, including
without limitation any subsequent amendment to Delaware Law.
TWELFTH: The Corporation expressly elects not to be governed
by Section 203 of the Delaware Law.
THIRTEENTH: Until the earlier to occur of (i) the termination
of the Stockholders Agreement (as hereinafter defined), or (ii) the consummation
of a Qualified IPO (as hereinafter defined), in case the Corporation or any
Affiliated Successor (as hereinafter defined) proposes to issue or sell any
shares of Common Stock or any rights, warrants, options, convertible securities
or indebtedness, exchangeable securities or indebtedness, or other rights
exercisable for or convertible or exchangeable into, directly or indirectly,
Common Stock and securities convertible or exchangeable into Common Stock,
whether at the time of issuance or upon the passage of time or the occurrence of
some future event (collectively, "Common Stock Equivalents", and together with
any shares of Common Stock, the "Offered Securities"), the Corporation shall, no
later than twenty (20) days prior to the consummation of such transaction (a
"Preemptive Rights
5
Transaction"), give notice in writing (the "Offer Notice") to each
securityholder who is, at such time, a party to the Stockholders Agreement
(each, a "Holder") of such Preemptive Rights Transaction. The Offer Notice shall
describe the proposed Preemptive Rights Transaction, identify the proposed
purchaser, and contain an offer (the "Preemptive Rights Offer") to sell to each
Holder who certifies (to the reasonable satisfaction of the Corporation) that
such Holder is an "Accredited Investor", as defined in Regulation D under the
Securities Act of 1933, as amended (an "Accredited Offeree"), at the same price
and for the same consideration to be paid by the proposed purchaser, all or part
of such Accredited Offeree's pro rata portion of the Offered Securities (which
shall be the percentage ownership of the Fully Diluted Common Stock held by such
Holder, excluding, for the purposes of such calculation, any shares of Common
Stock issuable upon exercise of any Common Stock Equivalents granted pursuant to
any employee, officer or director benefit plan or arrangement). If any such
Holder fails to accept such offer by written notice fifteen days after its
receipt of the Offer Notice, the Corporation or such Affiliated Successor may
proceed with the proposed issue or sale of the Offered Securities, free of any
right on the part of such Holder under this Article Thirteenth in respect
thereof.
Notwithstanding anything else contained in this Article
Thirteenth, the foregoing paragraph shall not apply to (i) issuances or sales of
Common Stock or Common Stock Equivalents to employees, officers, and/or
directors of the Corporation and/or any of its Subsidiaries (as hereinafter
defined) pursuant to employee benefit or similar plans or arrangements of the
Corporation and/or its Subsidiaries, (ii) issuances or sales of Common Stock or
Common Stock Equivalents upon exercise of any Common Stock Equivalent which,
when issued, was subject to or exempt from the preemptive rights under this
Article Thirteenth, (iii) securities distributed or set aside ratably to all
holders of Common Stock and Common Stock Equivalents (or any class or series
thereof) on a per share equivalent basis, (iv) issuances or sales of Common
Stock or Common Stock Equivalents pursuant to a registered underwritten public
offering, a merger of the Corporation or a Subsidiary of the Corporation into or
with another entity or an acquisition by the Corporation or a Subsidiary of the
Corporation of another business or corporation, or (v) issuances of Common Stock
by the Corporation in payment of all or any portion of the principal of, or
interest or premium on, any indebtedness of the Corporation or any of its
Subsidiaries. In the event of any issuances or sales of Common Stock or Common
Stock Equivalents as a unit with any other security of the Corporation or its
Subsidiaries, the preemptive rights under this Article Thirteenth shall be
applicable to the entire unit rather than only the Common Stock or Common Stock
Equivalent included in the unit.
For purposes of this Article Thirteenth, the following terms
are defined as follows:
"Affiliated Successor" means a successor entity to the
Corporation (whether by merger, consolidation, reorganization, or otherwise) in
which the HMC
6
Group owns at least the same percentage of the fully-diluted common stock of
such entity (after giving effect to the merger, consolidation, reorganization,
or other transaction) as the HMC Group owns of the Fully-Diluted Common Stock of
the Corporation.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding Common Stock of the Corporation plus (without duplication) all
shares of Common Stock issuable, whether at such time or upon the passage of
time or the occurrence of future events, upon the exercise, conversion, or
exchange of all then outstanding Common Stock Equivalents.
"HMC Group" means HMTF and its Affiliates and its and their
respective officers, directors, and employees (and members of their respective
families and trusts for the primary benefit of such family members).
"HMTF" means Hicks, Muse, Tate & Furst Incorporated, a Texas
corporation.
"Person" or "person" means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
"Qualified IPO" means a firm commitment underwritten public
offering of Common Stock pursuant to a registration statement under the
Securities Act of 1933, as amended, where both (i) the proceeds to the
Corporation (prior to deducting any underwriters' discounts and commissions)
equal or exceed [Fifth Million Dollars ($50,000,000)] and (ii) upon consummation
of such offering, the Common Stock is listed on the New York Stock Exchange or
authorized to be quoted and/or listed on the Nasdaq National Market.
"Stockholders Agreement" means that certain Stockholders
Agreement dated February 1998, by and among the Corporation and each
securityholder party thereto.
"Subsidiary" of any Person means (i) a corporation a majority
of whose outstanding shares of capital stock or other equity interests with
voting power, under ordinary circumstances, to elect directors, is at the time,
directly or indirectly, owned by such Person, by one or more subsidiaries of
such Person or by such Person and one or more subsidiaries of such Person, and
(ii) any other Person (other than a corporation) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination thereof has (x) at
least a majority ownership interest or (y) the power to elect or direct the
election of the directors or other governing body of such Person.
7
I, the undersigned, for the purpose of forming the Corporation under Delaware
Law, do make, file, and record this Certificate of Incorporation and do certify
that this is my act and deed and that the facts stated herein are true and,
accordingly, I do hereunto set my hand on this 11th day of February, 1998.
/s/ ANTONIOS C. BACKOS
----------------------------------
Antonios C. Backos
Incorporator
8
EXHIBIT 99.2
BYLAWS
OF
RANGER EQUITY HOLDINGS CORPORATION
A Delaware Corporation
TABLE OF CONTENTS
Page
PREAMBLE 2
Article 1 ARTICLE ONE: OFFICES.............................................................2
1.1 Registered Office and Agent...........................................................2
1.2 Other Offices.........................................................................2
Article 2 ARTICLE TWO: MEETINGS OF STOCKHOLDERS............................................2
2.1 Annual Meeting........................................................................2
2.2 Special Meeting.......................................................................3
2.3 Place of Meeting......................................................................3
2.4 Notice................................................................................3
2.5 Voting List...........................................................................3
2.6 Quorum................................................................................4
2.7 Required Vote; Withdrawal of Quorum...................................................4
2.8 Method of Voting; Proxies.............................................................4
2.9 Record Date...........................................................................5
2.10 Conduct of Meeting....................................................................6
2.11 Inspectors............................................................................6
Article 3 ARTICLE THREE: DIRECTORS.........................................................6
3.1 Management............................................................................6
3.2 Number; Qualification; Election; Term.................................................7
3.3 Change in Number......................................................................7
3.4 Removal...............................................................................7
3.5 Vacancies.............................................................................7
3.6 Meetings of Directors.................................................................8
3.7 First Meeting.........................................................................8
3.8 Election of Officers..................................................................8
3.9 Regular Meetings......................................................................8
3.10 Special Meetings......................................................................8
3.11 Notice................................................................................8
3.12 Quorum; Majority Vote.................................................................8
Page
6.11 Secretary............................................................................13
6.12 Assistant Secretaries................................................................14
Article 7 ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS....................................14
7.1 Certificates for Shares..............................................................14
7.2 Replacement of Lost or Destroyed Certificates........................................14
7.3 Transfer of Shares...................................................................14
7.4 Registered Stockholders..............................................................15
7.5 Regulations..........................................................................15
7.6 Legends..............................................................................15
Article 8 ARTICLE EIGHT: MISCELLANEOUS PROVISIONS.........................................15
8.1 Dividends............................................................................15
8.2 Reserves.............................................................................15
8.3 Books and Records....................................................................15
8.4 Fiscal Year..........................................................................16
8.5 Seal.................................................................................16
8.6 Resignations.........................................................................16
8.7 Securities of Other Corporations.....................................................16
8.8 Telephone Meetings...................................................................16
8.9 Action Without a Meeting.............................................................16
8.10 Invalid Provisions...................................................................17
8.11 Mortgages, etc.......................................................................17
8.12 Headings.............................................................................17
8.13 References...........................................................................17
8.14 Amendments...........................................................................17
iii
BYLAWS
OF
RANGER EQUITY HOLDINGS CORPORATION
A Delaware Corporation
PREAMBLE
These bylaws are subject to, and governed by, the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of Ranger Equity Holdings Corporation, a Delaware
corporation (the "Corporation"). In the event of a direct conflict between the
provisions of these bylaws and the mandatory provisions of the Delaware General
Corporation Law or the provisions of the certificate of incorporation of the
Corporation, such provisions of the Delaware General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE 1
ARTICLE ONE: OFFICES
1.1 REGISTERED OFFICE AND AGENT. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE 2
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETING. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly
executed waiver of notice of such meeting. At such meeting, the stockholders
shall elect directors and transact such other business as may properly be
brought before the meeting.
2.2 SPECIAL MEETING. A special meeting of the stockholders may be
called at any time by the Chairman of the Board, the President, the board of
directors, and shall be called by the President or the Secretary at the request
in writing of the stockholders of record of not less than ten percent of all
shares entitled to vote at such meeting or as otherwise provided by the
certificate of incorporation of the Corporation. A special meeting shall be held
on such date and at such time as shall be designated by the person(s) calling
the meeting and stated in the notice of the meeting or in a duly executed waiver
of notice of such meeting. Only such business shall be transacted at a special
meeting as may be stated or indicated in the notice of such meeting or in a duly
executed waiver of notice of such meeting.
2.3 PLACE OF MEETING. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 NOTICE. Written or printed notice stating the place, day, and time
of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the President, the Secretary, or the
officer or person(s) calling the meeting, to each stockholder of record entitled
to vote at such meeting. If such notice is to be sent by mail, it shall be
directed to such stockholder at his address as it appears on the records of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices to him be mailed to some other address, in which
case it shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 VOTING LIST. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within
3
the city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.6 QUORUM. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these by-laws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 REQUIRED VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at
any meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 METHOD OF VOTING; PROXIES. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein
4
to be irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.
2.9 RECORD DATE. For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, for any such determination of stockholders, such date
in any case to be not more than 60 days and not less than ten days prior to such
meeting nor more than 60 days prior to any other action. If no record date is
fixed:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close
of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of
directors may fix a new record date for the adjourned meeting.
(iv) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without
a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which date shall
not be more than ten days after the date upon which the resolution
fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date
for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of
directors is required by law or these bylaws, shall be the first date
on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office in the State of
Delaware, principal place of business, or such officer or agent shall
be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of
5
directors and prior action by the board of directors is required by law
or these bylaws, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts
the resolution taking such prior action.
2.10 CONDUCT OF MEETING. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.
2.11 INSPECTORS. The board of directors may, in advance of any meeting
of stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
ARTICLE 3
ARTICLE THREE: DIRECTORS
3.1 MANAGEMENT. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
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3.2 NUMBER; QUALIFICATION; ELECTION; TERM. The number of directors
which shall constitute the entire board of directors shall be not less than one.
The first board of directors shall consist of the number of directors named in
the certificate of incorporation of the Corporation or, if no directors are so
named, shall consist of the number of directors elected by the incorporator(s)
at an organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the entire board of directors shall be determined by resolution
of the board of directors or by resolution of the stockholders at the annual
meeting thereof or at a special meeting thereof called for that purpose. Except
as otherwise required by law, the certificate of incorporation of the
Corporation, or these bylaws, the directors shall be elected at an annual
meeting of stockholders at which a quorum is present. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to vote on the election of directors. Each director so chosen
shall hold office until the first annual meeting of stockholders held after his
election and until his successor is elected and qualified or, if earlier, until
his death, resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.
3.3 CHANGE IN NUMBER. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 REMOVAL. Except as otherwise provided in the certificate of
incorporation of the Corporation or these by-laws, at any meeting of
stockholders called expressly for that purpose, any director or the entire board
of directors may be removed, with or without cause, by a vote of the holders of
a majority of the shares then entitled to vote on the election of directors;
provided, however, that so long as stockholders have the right to cumulate votes
in the election of directors pursuant to the certificate of incorporation of the
Corporation, if less than the entire board of directors is to be removed, no one
of the directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.
3.5 VACANCIES. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death, resignation,
or removal from office. If there are no directors in office, an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly-created directorship, the directors then in
office shall constitute less than a majority of the whole board of directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of the
total number of the shares at the time outstanding having the
7
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly-created directorships or to replace the directors
chosen by the directors then in office. Except as otherwise provided in these
bylaws, when one or more directors shall resign from the board of directors,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in these bylaws with respect to the filling of other
vacancies.
3.6 MEETINGS OF DIRECTORS. The directors may hold their meetings and
may have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.7 FIRST MEETING. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.8 ELECTION OF OFFICERS. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 REGULAR MEETINGS. Regular meetings of the board of directors shall
be held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 SPECIAL MEETINGS. Special meetings of the board of directors shall
be held whenever called by the Chairman of the Board, the President, or any
director.
3.11 NOTICE. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 QUORUM; MAJORITY VOTE. At all meetings of the board of directors,
a majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or
8
these bylaws, the act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the board of directors. At
any time that the certificate of incorporation of the Corporation provides that
directors elected by the holders of a class or series of stock shall have more
or less than one vote per director on any matter, every reference in these
bylaws to a majority or other proportion of directors shall refer to a majority
or other proportion of the votes of such directors.
3.13 PROCEDURE. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.
3.14 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.15 COMPENSATION. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE 4
ARTICLE FOUR: COMMITTEES
4.1 DESIGNATION. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.
4.2 NUMBER; QUALIFICATION; TERM. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by
9
resolution adopted by a majority of the entire board of directors. Each
committee member shall serve as such until the earliest of (i) the expiration of
his term as director, (ii) his resignation as a committee member or as a
director, or (iii) his removal as a committee member or as a director.
4.3 AUTHORITY. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 COMMITTEE CHANGES. The board of directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 ALTERNATE MEMBERS OF COMMITTEES. The board of directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting of
the committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 REGULAR MEETINGS. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 SPECIAL MEETINGS. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 QUORUM; MAJORITY VOTE. At meetings of any committee, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.
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4.9 MINUTES. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the board of directors upon the request
of the board of directors. The minutes of the proceedings of each committee
shall be delivered to the Secretary of the Corporation for placement in the
minute books of the Corporation.
4.10 COMPENSATION. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 RESPONSIBILITY. The designation of any committee and the
delegation of authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE 5
ARTICLE FIVE: NOTICE
5.1 METHOD. Whenever by statute, the certificate of incorporation of
the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice required
or permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given at the time transmitted with all charges prepaid and
addressed as aforesaid.
5.2 WAIVER. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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ARTICLE 6
ARTICLE SIX: OFFICERS
6.1 NUMBER; TITLES; TERM OF OFFICE. The officers of the Corporation
shall be a President, a Secretary, and such other officers as the board of
directors may from time to time elect or appoint, including a Chairman of the
Board, one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine), and a
Treasurer. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, until his death, or until he shall resign
or shall have been removed in the manner hereinafter provided. Any two or more
offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 REMOVAL. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 VACANCIES. Any vacancy occurring in any office of the Corporation
(by death, resignation, removal, or otherwise) may be filled by the board of
directors.
6.4 AUTHORITY. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
6.5 COMPENSATION. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the compensation
of any officer and agent (other than the officer to whom such power is
delegated) to the Chairman of the Board or the President.
6.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 PRESIDENT. The President shall be the chief executive officer of
the Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as
12
may be reasonably incident to such responsibilities. If the board of directors
has not elected a Chairman of the Board or in the absence or inability to act of
the Chairman of the Board, the President shall exercise all of the powers and
discharge all of the duties of the Chairman of the Board. As between the
Corporation and third parties, any action taken by the President in the
performance of the duties of the Chairman of the Board shall be conclusive
evidence that there is no Chairman of the Board or that the Chairman of the
Board is absent or unable to act.
6.8 VICE PRESIDENTS. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
6.9 TREASURER. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the
President.
6.10 ASSISTANT TREASURERS. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer during
that officer's absence or inability to act.
6.11 SECRETARY. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which shall
at all reasonable times be open to inspection by any director upon application
at the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the board of directors, the Chairman of the Board, and the President.
6.12 ASSISTANT SECRETARIES. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or
13
the President. The Assistant Secretaries (in the order of their seniority as
determined by the board of directors or, in the absence of such a determination,
as determined by the length of time they have held the office of Assistant
Secretary) shall exercise the powers of the Secretary during that officer's
absence or inability to act.
ARTICLE 7
ARTICLE SEVEN: CERTIFICATES AND SHAREHOLDERS
7.1 CERTIFICATES FOR SHARES. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.
7.2 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
surety or sureties satisfactory to the Corporation in such sum as it may direct
as indemnity against any claim, or expense resulting from a claim, that may be
made against the Corporation with respect to the certificate or certificates
alleged to have been lost or destroyed.
7.3 TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the
14
Corporation or its transfer agent shall issue a new certificate to the person
entitled thereto, cancel the old certificate, and record the transaction upon
its books.
7.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 REGULATIONS The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 LEGENDS. The board of directors shall have the power and authority
to provide that certificates representing shares of stock bear such legends as
the board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE 8
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 DIVIDENDS. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 RESERVES. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 BOOKS AND RECORDS. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
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8.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
the board of directors; provided, that if such fiscal year is not fixed by the
board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 SEAL. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
8.6 RESIGNATIONS. Any director, committee member, or officer may resign
by so stating at any meeting of the board of directors or by giving written
notice to the board of directors, the Chairman of the Board, the President, or
the Secretary. Such resignation shall take effect at the time specified therein
or, if no time is specified therein, immediately upon its receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
8.7 SECURITIES OF OTHER CORPORATIONS. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
8.8 TELEPHONE MEETINGS. Stockholders (acting for themselves or through
a proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 ACTION WITHOUT A MEETING. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein
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unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section 8.9(a) to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office, principal place of business, or
such officer or agent shall be by hand or by certified or registered mail,
return receipt requested.
(b) Unless otherwise restricted by the certificate of incorporation of
the Corporation or by these bylaws, any action required or permitted to be taken
at a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be, entitled to vote with respect to the
subject matter thereof, and such consent shall have the same force and effect as
a vote of such directors or committee members, as the case may be, and may be
stated as such in any certificate or document filed with the Secretary of State
of the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the board
or committee, as the case may be.
8.10 INVALID PROVISIONS. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 MORTGAGES, ETC. With respect to any deed, deed of trust, mortgage,
or other instrument executed by the Corporation through its duly authorized
officer or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.12 HEADINGS. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 REFERENCES. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.
8.14 AMENDMENTS. These bylaws may be altered, amended, or repealed or
new bylaws may be adopted by the stockholders or by the board of directors at
any regular meeting of the stockholders or the board of directors or at any
special meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.
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